3. Notes payable. Red Bank Enterprises was involved in the following transaction
ID: 2449336 • Letter: 3
Question
3. Notes payable. Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31:
2-Aug: Borrowed $55,000 from the Bank of Kingsville by signing a 90-day, 12% note.
20-Aug: Issued a $50,000 note to Harris Motors for the purchase of a $50,000 delivery truck. The note is due in 180 days and carries a 12% interest r ate.
10-Sep: Purchased merchandise from Pans Enterprises in the amount of $15,000. Issued
a 30-day, 12% note in settlement of the balance owed.
11-Sep: 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-Oct: The note to Pans Enterprises was paid in full.
11-Oct: The note to Datatex Equipment was paid in full.
30-Oct: 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’s balance sheet as of December 31. Assume that the Accounts Payable account totals $203,600 on this date.
Explanation / Answer
1 & 2. Journal Entries :
Date Journal Entries Dr Cr 02-Aug Cash/Bank Account 55,000 To Loans 55,000 [Loan from Kingsville] 20-Aug Fixed Assets (Delivery Truck Purchased) 50,000 To Notes Payable (harris Motors) 50,000 Delivery truck purchased from Harris Motors 10-Sep Merchandise/Materials exps 15,000 To Notes Payable 15,000 [issued notes to Pans @12% for 30 days] 11-Sep Accounts Payable 60,000 To Notes Payable 60,000 [issued notes @14% for 30 days] 10-Oct Interest Exps 150 To Accounts Payable 150 [Interest on 15000@12% for 30 days] 10-Oct Notes Payable (Pans Enterprises) 15,150 To Cash/Bank 15,150 [paid to Pans @12% for 30 days] 11-Oct Interest Exps 700 To Accounts Payable 700 [Interest on 60000@14% for 30 days] 11-Oct Notes Payable (Dataex Equipment) 60,700 To Cash/Bank 60,700 [paid to dataex @14% for 30 days] 30-Oct Interest expenses 1,650 To Notes Payable 1,650 [Interest on Kingsville loan @12% for 90 days] 30-Oct Notes Payable (Kingsville Bank) 56,650 To Cash/Bank 56,650 (Loan paid back with interest) 31-Dec Interest expenses 6,000 To Notes Payable 6,000 [Interest @ 12% for 132 days from 21-Aug to 31-Dec to Harris Motors]Related Questions
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