Question

During the financial year ended 31 December, Lee Corporation engaged in the following transactions involving notes payable: 1 July Borrowed $20,000 from Weston Bank, signing a 90-day, 12 percent note payable. 16 Sept. Purchased office equipment from Moontime Equipment. The invoice amount was $30,000, and Moontime agreed to accept as full payment, a 10 percent, three month note for the invoice amount. 1 Oct. Paid Weston Bank the note plus accrued interest. 1 Dec. Borrowed $100,000 from Jean Will, a major corporate shareholder. The corporation issued Will a $100,000,9 percent, 120-day note payable. 1 Dec. Purchased inventory in the amount of $10,000 from Listen Corporation. Listen accepted a 90-day, 12 percent note as a full settlement of the purchase. Lee Corporation uses a perpetual inventory system. 16 Dec. The $30,000 note payable to Moontime Equipment matured today. Lee paid the accrued interest on this note and issued a new 60-day, 16 percent note payable in the amount of $30,000 to replace the note that matured.

Answer 1

a.

		Debit	Credit
Jul-01	Cash	20,000
	To Note Payable-12% (Weston Bank)		20,000
Sep-16	Office Equipment	30000
	To Note Payable-10% (Moontime Equipment)		30,000
Oct-01	Note Payable-12% (Weston Bank)	20000
	Interest Expense   (20000*12%)*90/360	600
	To Cash		20,600
Dec-01	Cash	100000
	To Note Payable-9% (Jean Will)		1,00,000
Dec-01	Inventory	10000
	To Note Payable-12% (Listen Corporation)		10000
Dec-16	Note Payable-10% (Moontime Equipment)	30000
	Interest Expense   (30000*10%)*3/12	750
	To Note Payable-16% (Moontime Equipment)		30000
	To Cash		750

b.

Adjusting Entry

31-Dec	Interest expense	1050
	To Interest Accrued/(Interest Payable)		1050

Interest expense	Date of Note issued	Days interest accrued up to 31-Dec	Interest Accrued
Note Payable-9% (Jean Will)	Dec-01	30	750	(100000*9%)*30/360
To Note Payable-12% (Listen Corporation)	Dec-01	30	100	(10000*12%)*30/360
To Note Payable-16% (Moontime Equipment)	Dec-16	15	200	(30000*16%)*15/360
Total			1050

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