2. Current liabilities: entries and disclosure. A review of selected financial a

Question

2. Current liabilities: entries and disclosure. A review of selected financial activities of Visconti’s during 20XX disclosed the following:

  
1-Dec: Borrowed $10,000 from the First City Bank by signing a 3-month, 15% note payable.
Interest and principal are due at maturity.      
10-Dec: Established a warranty liability for the XY-80, a new product. Sales are expected to
total 1,000 units during the month. Past experience with similar products indicates
that 3% of the units will require repair, with warranty costs averaging $27 per unit (parts only).
22-Dec: Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30.
26-Dec: Borrowed $5,000 from First City Bank; signed a 15% note payable due in 60 days. (Assume 360 day year for interest)
31-Dec: Repaired six XY-80s during the month at a total cost of $162  
31-Dec: Accrued three days of salaries at a total cost of $1,400.      

Instructions
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on December 31 to record accrued interest for each of the notes payable.

Explanation / Answer

Question a. Date Account Title Debit Credit 1-Dec-20XX Cash 10000 3 months 15% notes Payable 10000 10-Dec-20XX Warrenty Expenses 2430 Allowence for Warranty 2430 22-Dec-20XX Purchase 16000 Accounts Payable 16000 26-Dec-20XX Cash 5000 60 days 15% notes payable 5000 31-Dec-20XX Allowence for Warranty 162 Cash 162 31-Dec-20XX Salaries and Wages 1400 Accrued Salaries and Wages Payable 1400 Question b. Interest Expenses 133.22 Accrued Interest Payable 133.22 (Interest expenses:10000 x 15%/12+5000 x 15%/365*4days payable)

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