Question

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

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%.

May 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.

August 16 - Purchased merchandise on account from Exige Co., $90,000, terms, n/30

September 15 - Issued a 45-day, 6% note for $90,000 to Exige Co., on account.

October 28 - Paid Spyder Manufacturing Co. the amount due on the note of May 1

October 30 - Paid Exige Co. the amount owed on the note of September 15.

November 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.

December 16 - Paid the amount due Gallardo Co. on the first note in the series issued on November 16.

December 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.

Instructions

1. Journalize the transactions.

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.

 

 

Answer 1

Solution:

1)

date	account title	debit	credit
Apr-15	Cash	225000
	notes payable		225000
May-01	equipment	310400
	Interest expense (320000*6%*180/360)	9600
	notes payable		320000
May-15	Interest expense =225000*6%*30/360	1125
	notes payable	225000
	notes payable		225000
	Cash		1125
Jul-14	notes payable	225000
	Interest expense =225000*8%*60/360	3000
	Cash		228000
Aug-16	Merchandise	90000
	accounts payable		90000
Sep-15	accounts payable	90000
	notes payable		90000
Oct-28	notes payable	320000
	Cash		320000
Oct-30	notes payable	90000
	interest expense (90000*6%*45/360)	675
	Cash		90675
Nov-16	store equipment	450000
	Cash		50000
	notes payable (20000*20)		400000
Dec-16	notes payable	20000
	Interest expense (20000*0.09*30/360)	150
	Cash
Dec-28	Litigation loss	87500
	Litigation loss payable		87500

2)

	account title	debit	credit
a	Product warranty expense	26800
	product warranty payable		26800
b	Interest expense	2850
	Interest payable		2850
	20000*19*0.09*30/360