Log out Go to App
Go to App

Learning Materials

Features

Discover

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

01

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)



02

Workings notes:

Calculation of interest expenses at December 31:

InterestExpenses=NotesPayble×InterestRate×Period=$16,000×9%512=$600

Calculation of interest expenses at August 31:

InterestExpenses=NotesPayble×InterestRate×Period=$16,000×9%712=$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!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What is a current liability? Provide some examples of current liabilities.

Recording employer payroll taxes and employee benefits Ricardo’s Mexican Restaurant incurred salaries expense of \(62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, \)22,000 is subject to unemployment tax. Also, the company provides the following benefits for employees: health insurance (cost to the company, \(3,000), life insurance (cost to the company, \)330), and retirement benefits (cost to the company, 10% of salaries expense).

Requirements

  1. Journalize Ricardo’s expenses for employee benefits and for payroll taxes. Explanations are not required.
  2. What was Ricardo’s total expense for 2018 related to payroll?

On August 10, Swanson Company recorded sales of merchandise inventory on account, \(4,000. The sales were subject to sales tax of 4%. The company uses the perpetual inventory system. On September 30, Swanson paid \)500 of sales tax to the state.

1. Journalize the transaction to record the sale on August 10. Ignore cost of goods sold.

In 150 words or fewer, explain how contingent liabilities are accounted for.

The following transactions of Philadelphia Pharmacies occurred during 2017 and 2018:

2017

Jan. 9 Purchased computer equipment at a cost of \(7,000, signing a six-month, 8% note payable for that amount.

29 Recorded the week’s sales of \)68,000, three-fourths on credit and one-fourth for cash. Sales amounts are subject to a 6% state sales tax. Ignore cost of goods sold.

Feb. 5 Sent the last week’s sales tax to the state.

Jul. 9 Paid the six-month, 8% note, plus interest, at maturity.

Aug. 31 Purchased merchandise inventory for \(3,000, signing a six-month, 10% note payable. The company uses the perpetual inventory system.

Dec. 31 Accrued warranty expense, which is estimated at 2% of sales of \)609,000.

31 Accrued interest on all outstanding notes payable.

2018

Feb. 28 Paid the six-month 10% note, plus interest, at maturity.

Journalize the transactions in Plymouth’s general journal. Explanations are not required.

See all solutions

Recommended explanations on Business Studies Textbooks

Introduction to Business

Read Explanation

Nature of Business

Read Explanation

Operational Management

Read Explanation

Business Case Studies

Read Explanation

Strategic Analysis

Read Explanation

Change Management

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free