E13-2 (L01) EXCEL (Accounts and Notes payable) The followingare selected 2017 transactions of Sean Astin Corporation.

Sept.1 Purchased inventory from Encino Company on account for \(50,000. Astin records purchases gross and uses a periodic inventory system.

Oct. 1 Issued a \)50,000, 12-month, 8% note to Encino in payment of account.

Oct. 1Borrowed \(50,000 from the Shore Bank by signing a 12-month,zero- interest-bearing \)54,000 note.

Instructions

(a) Prepare journal entries for the selected transactions above.

(b) prepare adjusting entries at December 31.

(c) Compute the total net liability to be reported on the December 31balancesheetfor:

(1) The interest-bearing note.

(2) The zero-interest-bearing note.

Step by step solution

01

Step 1:Meaning of Journal

Journal refers to recording a business's monetary transactions in the manner in which they occurred.

02

Showing Journal entries for part (a)

Date	Titles and explanation	Debit ($)	Credit ($)
Sept 1	Purchases	50,000
	Account payable		50,000
	(To record purchases of inventory)
Oct 1	Accounts Payable	4,000
	Notes Payable		4,000
	(To record issuance of notes payable)
Oct 1	Bank	50,000
	Discount on notes payable	4,000
	Notes payable		54,000
	(To amount borrowed from bank against note payable)

03

 Step 3: Showing adjusting journal entries part (b)

Date	Titles and explanation	Debit ($)	Credit ($)
Dec 31	Interest Expenses	1,000
	Interest payable		1,000
	(To interest expense is recorded)
Dec 31	Interest Expenses	1,000
	Discount on notes payable		1,000
	(To record interest expense)

04

Computation of total net liability on December 31 balance sheet

Calculation of interest bearing note

$\begin{array}{c}\text{Interest\hspace{0.17em}bearing\hspace{0.17em}note}=\text{Notes\hspace{0.17em}payable}+\text{\hspace{0.17em}Interest\hspace{0.17em}payable}\\ =\$50,000+\$1,000\\ =\$51,000\end{array}$

Calculation of zero interest bearing note

$\begin{array}{c}\text{Zero\hspace{0.17em}interest\hspace{0.17em}bearing\hspace{0.17em}note}=\text{Notes\hspace{0.17em}payable}-\text{discount}\\ \text{=\$54,000}-(\$4,000-\$1,000)\\ =\$51,000\end{array}$

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