Notes payable . Red Bank Enterprises was involved in the following transactions
ID: 2376691 • Letter: N
Question
Notes payable. Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31:
8/2:
Borrowed $75,000 from the Bank of Kingsville by signing a 120-day, 12% note.
8/20:
Issued a $40,000 note to Harris Motors for the purchase of a $40,000 delivery truck. The note is due in 180 days and carries a 12% interest rate.
9/10:
Purchased inventory from Pans Enterprises in the amount of $15,000. Issued a 30-day, 12% note in settlement of the balance owed.
9/11:
Issued a $60,000 note to Datatex Equipment in settlement of an overdue account payable of the same amount. The note is due in 30 days and carries a 14% interest rate.
10/10:
The note to Pans Enterprises was paid in full.
10/11: The note to Datatex Equipment was paid in full.
11/30: Paid note to Bank of Kingsville
Instructions
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on December 31 to record accrued interest (daily interest is calculated utilizing the 360 day method).
c. Prepare the Current Liability section of Red Bank%u2019s balance sheet as of December 31. Assume that the Accounts Payable account totals $203,600 on this date.
Explanation / Answer
8/2 - Bank /c dr
$75000
to 12% note
$75000
Delivery truck dr
$40,000
to Harris motors
$40,000
Purchase A/c dr
$15,000
to Pans enterprises
$15,000
Datatex Equipment
$60,000
14% note
$60,000
Pans enterprises
$15,000
to bank
$15,000
calculation for interest accrued
to harris motors
40000*12%*130/360
=
1733.333
adjusting entries
Interest a/c
dr
To interest outstanding
1733.33
c.
in current liabilities
Amt should be shown as interest O/S
1733.33
8/2 - Bank /c dr
$75000
to 12% note
$75000
Delivery truck dr
$40,000
to Harris motors
$40,000
Purchase A/c dr
$15,000
to Pans enterprises
$15,000
Datatex Equipment
$60,000
14% note
$60,000
Pans enterprises
$15,000
to bank
$15,000
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