Question

The following items were selected from among the transactions completed by O’Donnel Co. during the current year: Jan. 10. Purchased merchandise on account from Laine Co., $240,000, terms n/30. Feb. 9. Issued a 30-day, 4% note for $240,000 to Laine Co., on the account. Mar. 11. Paid Laine Co. the amount owed on the note of February 9. May 1. Borrowed $160,000 from Tabata Bank, issuing a 45-day, 5% note. June 1. Purchased tools by issuing a $180,000, 60-day note to Gibala Co., which discounted the note at the rate of 5%. 15. Paid Tabata Bank the interest due on the note of May 1 and renewed the loan by issuing a new 45-day, 7% note for $160,000. (Journalize both the debit and credit to the notes payable account.) July 30. Paid Tabata Bank the amount due on the note of June 15. 30. Paid Gibala Co. the amount due on the note of June 1. Dec. 1. Purchased office equipment from Warick Co. for $400,000, paying $100,000 and issuing a series of ten 5% notes for $30,000 each, coming due at 30-day intervals. 15. Settled a product liability lawsuit with a customer for $260,000, payable in January. O’Donnel accrued the loss in a litigation claims payable account. 31. Paid the amount due to Warick Co. on the first note in the series issued on December 1
1. Journalize the transactions. Refer to the Chart of Accounts for the exact wording of account titles. Assume a 360-day year.
2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year (refer to the Chart of Accounts for exact wording of account titles):
a. Product warranty cost, $23,000.
b. Interest in the nine remaining notes owed to Warick Co. Assumes a 360-day year.

Answer 1

Answer and Explanation:

The journal entries are shown below:

1.

On Jan 10

Inventory $240,000  

          To Accounts Payable - Laine Co. $240,000

(Being the inventory is purchased on account is recorded)

On Feb 9

Accounts Payable - Laine Co. $240,000  

             To Notes Payable  $240,000

(Being the issued of the note payable on account is recorded)

On March 11

Notes Payable $240,000  

Interest Expense ($240,000 × 30 ÷ 360 × 4%) $800  

       To Cash  $240,800

(Being the amount paid is recorded)

On May 1

Cash $160,000  

         To Notes Payable  $160,000

(Being the borrowed cash is recorded)

On June 1

Tools $178,500  

Interest Expense ($180,000 × 60 days ÷ 360 days × 5%) $1,500  

            To Notes Payable  $180,000

(Being the tools purchased is recorded)

On June 15

Notes Payable $160,000  

Interest Expense ($160,000 × 45 ÷ 360 days  × 5%) $1,000  

              To Notes Payable  $160,000

              To Cash  $1,000

(Being the cash paid is recorded)

On July 30

Notes Payable $160,000  

Interest Expense ($160,000 × 45 ÷ 360 × 7%) $1,400  

              To Cash  $161,400

On July 30

Notes Payable $180,000  

Cash  $180,000

(Being the amount paid is recorded)

On Dec 1

Office Equipment $400,000  

       To Notes Payable  $300,000

        To Cash  $100,000

(Being the office equipment is purchased)

On Dec 15

Litigation Loss  Dr $260,000  

      To Litigation Claims Payable  $260,000

(Being the litigation loss is recorded)

On Dec 31

Notes payable $30,000  

Interest Expense ($30,0000 × 30 ÷ 360 × 5%) $125  

           To Cash  $30,125      

(Being the amount paid is recorded)

2. The journal entries are shown below:

a. Product warranty expense $23,000  

                 To Product warranty payable  $23,000

(Being the product warranty expense is recorded)

b. Interest Expense $1,125   ($30,000 × 9 months × 30 ÷ 360 × 5%)

                    To Interest Payable  $1,125

(Being the interest expense is recorded

Answer 2

A journal entry is an act of recording or keeping track of any financial or non-financial activity. An accounting journal records transactions and displays a firm's debit and credit balances.

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