Liability Transactions The following items were selected from among the transact

Question

Liability Transactions

The following items were selected from among the transactions completed by Aston Martin Inc. during the current year:

Required:

For a compound transaction, accounts should be listed largest to smallest.

1. Journalize the transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. Assume a 360-day year.

2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year:
a. Product warranty cost, $26,800.
b. Interest on the 19 remaining notes owed to Gallardo Co.

Apr. 15. Borrowed $225,000 from Audi Company, issuing a 30-day, 6% note for that amount. May 1. Purchased equipment by issuing a $320,000, 180-day note to Spyder Manufacturing Co., which discounted the note at the rate of 6%. 15. Paid Audi Company the interest due on the note of April 15 and renewed the loan by issuing a new 60-day, 8% note for $225,000. (Record both the debit and credit to the notes payable account.) July 14. Paid Audi Company the amount due on the note of May 15. Aug. 16. Purchased merchandise on account from Exige Co., $90,000, terms, n/30. Sept. 15. Issued a 45-day, 6% note for $90,000 to Exige Co., on account. Oct. 28. Paid Spyder Manufacturing Co. the amount due on the note of May 1. 30. Paid Exige Co. the amount owed on the note of September 15. Nov. 16. Purchased store equipment from Gallardo Co. for $450,000, paying $50,000 and issuing a series of twenty 9% notes for $20,000 each, coming due at 30-day intervals. Dec. 16. Paid the amount due Gallardo Co. on the first note in the series issued on November 16. 28. Settled a personal injury lawsuit with a customer for $87,500, to be paid in January. Aston Martin Inc. accrued the loss in a litigation claims payable account.

Explanation / Answer

Journal Entries ;-

Date Particulars Debit ($) Credit ($) Apr. 15 Cash A/c Dr. 225000 To 6% Note Payable - Audi Company 225000 (To Record 6% Note Issued for 30 days) May 1 Equipment A/c Dr. 320000 To 6% Note Payable Spyder Manufacturing Com. 320000 (To Record 6% Bonds Issued for 180 days) May 15 Interest Expense A/c Dr.($225000*6%*30/360) 1125 To Cash 1125 (To Record Interest Paid) May 15 6% Note Payable A/c Dr. - Audi Co. 225000 To 8% Note Payable A/c - Audi Co. 225000 (To Record 8% Notes Issued for 60Days) Jul. 14 Interest Expense A/c Dr.($225000*8%*(60/360)) 3000 8% Note Payable A/c Dr. - Audi Co. 225000 To Cash A/c 228000 (To Recored Notes Repaid with Interest) Aug 16 Merchandise Inventory A/c Dr. 90000 To Accounts Payable A/c - Exigr Co. 90000 (To Recored Goods Purchased) Sep 15 Accounts Payable A/c Dr. - Exige Co. 90000 To 6% note payable A/c - Exige co. 90000 (To Recored Bond Issued to Accounts Payable) Oct 28 6% Notes Payable A/c Dr. Interest Expense A/c Dr. (320000*6%*180/360) To Cash A/c (To Recored Note Due Paid) Oct 30 6% Notes Payable A/c Dr. 90000 Interest Expense A/c Dr.($90000*6%*(45/360) 675 To Cash A/c 90675 (To Recored Note Due Paid) Nov 16 Equipment a/c Dr. 450000 To Cash A/c 50000 To 9% Notes Payable A/c 400000 (To Recored issued for equipment Purchase) Dec 16 9% Notes Payable A/c Dr. 20000 Interest Expense ($20000*9%*(30/360) 150 To Cash A/c 20150 Dec. 28 Personal Injury Damages A/c Dr. 87500 To Litigation Claims Payable A/c 87500 (To Recored Loss Settled ) Dec 31 Product Warranty Expense A/c Dr. 26800 To Product Warrenty Payable 26800 (To Recored Accrued Expense ) Dec 31 Interest Expense A/c Dr.($20000*19*9%*(30/360)) 2850 To Interest Payable A/c 2850 (To Recored Accrued Interest)

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