Exercise 13-2 The following are selected 2017 transactions of Stellar Corporatio

Question

Exercise 13-2 The following are selected 2017 transactions of Stellar Corporation. Sept. 1 Purchased inventory from Encino Company on account for $58,800. Stellar records purchases gross and uses a periodic inventory system. Oct. 1 Issued a $58,800, 12-month, 8% note to Encino in payment of account. Oct. 1 Borrowed $58,800 from the Shore Bank by signing a 12-month, zero-interest-bearing $61,760 note. Prepare journal entries for the selected transactions above. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record entries in the order displayed in the problem statement.) Date Account Titles and Explanation Debit Credit October 1 SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare adjusting entries at December 31. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,125.) Date Account Titles and Explanation Debit Credit December 31 (To record interest on the note) December 31 (To record discount on the note) SHOW LIST OF ACCOUNTS LINK TO TEXT Compute the total net liability to be reported on the December 31 balance sheet for: (1) The interest-bearing note $ (2) The zero-interest-bearing note $

Explanation / Answer

Entries for the transactions and the adjusting entries for interest expense are discount on note payable are as follows:

Date Account title and explanation Debit Credit Remarks 01-09-2017 Merchandise inventory a/c Dr 58800.00 To Accounts payable a/c Cr 58800.00 (Being purchases made on credit) 01-10-2017 Accounts payable a/c Dr $58,800.00 To 8% note payable a/c Cr $58,800.00 (Being accounts payable settled by signing 8% note payable) 01-10-2017 Cash a/c Dr $58,800.00 Discount on note payable a/c Dr $2,960.00 61760-58800=2960 To note payable a/c Cr $61,760.00 (Being zero interest bond signed ) 31-12-2017 Interest expense a/c Dr $1,916.00 To Discount on note payable a/c Cr $740.00 (2960/12)*2 To interest payable a/c Cr $1,176.00 ((58800*8%)/12)*3 (Being interest expense recorded)

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