Question

Cling-on Ltd. sells rock-climbing products and also operates an indoor climbing facility for climbing enthusiasts. On July 1, 2018, Cling-on received a three-month $13,200 bank loan from City Credit Union due on September 30, 2015, and bearing interest at 3%. Interest is payable at maturity. Note that the company records adjusting entries annually at its year end, December 31. During the next four months, Cling-on incurred the following: Sept. 1 30 Oct. 1 Purchased Inventory on account for $14,200 from Black Diamond, terms n/30. The company uses a perpetual inventory system Repaid the $13,200 bank loan payable to City Credit Union (see opening balance), as well as any interest owed. Issued a six month, 4%, 514,200 note payable to Black Diamond in exchange for the account payable (see September 1 transaction). Interest is payable on the first of each month. Borrowed $25,300 from Montpelier Bank for 12 months at 39 to finance the building of a new climbing area for advanced climbers. Use the asset account Buildings.) Interest is payable monthly on the first of each month. Paid interest on the Black Diamond note and Montpeller Bank loan Paid interest on the Black Diamond note and Montpelier Bank loan. Purchased a vehicle for $25,300 from Auto Dealer Ltd, to transport clients to nearby climbing sites. Pald $8,000 as a down payment and borrowed the remainder from Atlantic Bank for 12 months at 3%. Interest is payable quarterly, at the end of each quarter. Recorded accrued interest for the Black Diamond note and the Montpeller and Atlantic loans. 31

Answer 1

Date	Account titles and explanation					Debit	Credit
Sept 1.	Merchandise Inventory					14200
	Accounts payable						14200
	(To record purchase on account)
Sept 30.	Bank loan payable					13200
	Interest expense			(13200*3%*3/12)		99
	Cash						13299
	(Bank loan repaid along with 3 months interest)
Oct 1.	Accounts payable					14200
	Notes payable						14200
	(Issued note for accounts payable)
Oct 2.	Buildings					25300
	Bank loan payable						25300
	(Borrowed from bank to finance the building)
Nov 1.	Interest expense			(14200*4%*1/12)		47
	Cash						47
	(To record interest on black diamond note)
Nov 1.	Interest expense			(25300*3%*1/12)		63
	Cash						63
	(To record interest on Montpelier bank loan)
Dec 1.	Interest expense			(14200*4%*1/12)		47
	Cash						47
	(To record interest on black diamond note)
Dec 1.	Interest expense			(25300*3%*1/12)		63
	Cash						63
	(To record interest on Montpelier bank loan)
Dec 3.	Vehicles					25300
	Cash						8000
	Bank loan payable			(25300-8000)			17300
	(Purchased a vehicle)
Dec 31.	Interest expense			(14200*4%*1/12)		47
	Interest payable						47
	(To record interest accrued on black diamond note)
Dec 31.	Interest expense			(25300*3%*1/12)		63
	Interest payable						63
	(To record interest accrued on Montpelier bank loan)
Dec 31.	Interest expense			(17300*3%*1/12)		43
	Interest payable						43
	(To record interest accrued on Atlantic loans)
	Interest expense
Sept 30.	99
Nov 1.	47
Nov 1.	63
Dec 1.	47
Dec 1.	63
Dec 31.	47
Dec 31.	63
Dec 31.	43
	472		0
End bal.	472
	Interest payable
		Dec 31.	47
		Dec 31.	63
		Dec 31.	43
	0		153
		End bal.	153
	Notes payable
		Oct 1.	14200
	0		14200
		End bal.	14200
	Bank loan payable
Sept 30.	13200	Sept 1.	13200
		Oct 2.	25300
		Dec 3.	17300
	13200		55800
		End bal.	42600
	Income statement (Partial)
			$
Other revenues and expenses
Interest expense			472
Statement of financial position
			$
Current liabilities:
Interest payable			153
Notes payable			14200
Bank loan payable			42600
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