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Financial Accounting Current Liabilities & Note Transactions

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P11-1A Prepare current liability entries, adjusting entries, and current liabilities section.

On January 1, 2008, the ledger of Mane Company contains the following liability accounts.

Accounts Payable $52,000
Sales Taxes Payable 7,200
Unearned Service Revenue 16,000

During January the following selected transactions occurred.

Jan. 5 Sold merchandise for cash totaling $22,680, which includes 8% sales tax.
12 Provided services for customers who had made advance payments of $10,000. (Credit Service Revenue.)
14 Paid state revenue department for sales taxes collected in December 2007 ($7,700).
20 Sold 800 units of a new product on credit at $50 per unit, plus 8% sales tax.
21 Borrowed $18,000 from UCLA Bank on a 3-month, 8%, $18,000 note.
25 Sold merchandise for cash totaling $12,420, which includes 8% sales taxes.

(a) Journalize the January transactions.
(b) Journalize the adjusting entries at January 31 for the outstanding notes payable. (Hint: Use one-third of a month for the UCLA Bank note.)
(c) Prepare the current liabilities section of the balance sheet at January 31, 2008. Assume no change in accounts payable.

P11-2A Journalize and post note transactions; show balance sheet presentation.

The following are selected transactions of Winsky Company. Winsky prepares financial statements quarterly.

Jan. 2 Purchased merchandise on account from Yokum Company, $30,000, terms 2/10, n/30.
Feb. 1 Issued a 9%, 2-month, $30,000 note to Yokum in payment of account.
Mar. 31 Accrued interest for 2 months on Yokum note.
Apr. 1 Paid face value and interest on Yokum note.
July 1 Purchased equipment from Korsak Equipment paying $11,000 in cash and signing a 10%, 3-month, $40,000 note.
Sept. 30 Accrued interest for 3 months on Korsak note.
Oct. 1 Paid face value and interest on Korsak note.
Dec. 1 Borrowed $15,000 from the Otago Bank by issuing a 3-month, 8% interest-bearing note with a face value of $15,000.
Dec. 31 Recognized interest expense for 1 month on Otago Bank note.

(a) Prepare journal entries for the above transactions and events.
(b) Post to the accounts Notes Payable, Interest Payable, and Interest Expense.
(c) Show the balance sheet presentation of notes and interest payable at December 31.
(d) What is total interest expense for the year?


Solution Summary

This solution is comprised of two financial accounting problems dealing with the following concepts:
1) How to prepare current liability entries, adjusting entries, and current liabilities section.
2) How to journalize and post note payable transactions and show the balance sheet presentation.

The problems shown here are taken from Financial Accounting, 6th ed., Wiley Publishing, however, the detail step-by-step explanation of these topics provides students with a clear understanding of the concepts.