Chapter 11: Q15E (page 607)

Consider the following note payable transactions of Creative Video Productions. 2017 Aug. 1 Purchased equipment costing $16,000 by issuing a one-year, 9% note payable. Dec. 31 Accrued interest on the note payable. 2018 Aug. 1 Paid the note payable plus interest at maturity. Journalize the transactions for the company.

Short Answer

Expert verified

Answer

Equipment cost is debited by $16,000 and notes payable credited by $16,000.
Interest expenses debited by $600 and interest payable are credited by $600.
Note payable, interest expenses payable and interest expenses are debited by $16,000, $600 and $840 respectively. The cash is credited by $17,440.

Step by step solution

Journal entries

Date	Accounts and explanation	Debit	Credit
Aug 1, 2017	Equipment cost	$16,000
	Note payable		$16,000
	(To record equipment in exchange of notes payable)
Dec. 31	Interest expenses	$600
	Interest payable		$600
	(To record accrued interest)
Aug 1, 2018	Note payable	$16,000
	Interest expense payable	$600
	Interest expenses	$840
	Cash		$17,440
	(To record note paid and interest at maturity)

Workings notes:

Calculation of interest expenses at December 31:

$I n t e r e s t E x p e n s e s = N o t e s P a y b l e \times I n t e r e s t R a t e \times P e r i o d = $ 16, 000 \times 9 % \frac{5}{12} = $ 600$

Calculation of interest expenses at August 31:

$I n t e r e s t E x p e n s e s = N o t e s P a y b l e \times I n t e r e s t R a t e \times P e r i o d = $ 16, 000 \times 9 % \frac{7}{12} = $ 840$

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Earnings			Withholdings
Beginning Cumulative Earnings	Current Period Earnings	Ending Cumulative Earnings	OASDI	Medicare	Income tax	Health Insurance	United way	Total Withholding	Net pay	Check No.	Salaries and Wages Expense
\( 77,000	\) 4,500				\( 900	\) 90	\(15			801
112,000	7,200				1,200	144	35			802
48,000	3,300				600	66	0			803
61,000	3,300				850	66	20			804
0	4,500				1,100	90	0			805
\)298,000	\(22,800				\)4,650	\(456	\)70

Nov.21	Made sales of \(52,000. McNight estimates that warranty expense is 6% of sales.(Record only the warranty expense.)
30	Paid \)1,600 to satisfy warranty claims.
Dec.31	Estimated vacation benefits expense to be \(6,000
31	McNight expected to pay its employees a 3% bonus on net income after deducting the bonus. Net income for the year is \)52,000

Short Answer

Step by step solution

Journal entries

Workings notes:

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Intermediate Accounting

Organizational Behavior

Managerial Economics

Business Development

Strategic Analysis

Business Case Studies

Study anywhere. Anytime. Across all devices.