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Important information about Accounts and Notes Payable

Described below are certain transactions of Carson Company for 2007:
1. On May 10, the company purchased goods from Jay Company for $50,000, terms 2/10, n/30. Purchases and accounts payable are recorded at net amounts. The invoice was paid on May 18.
2. On June 1, the company purchased equipment for $60,000 from Nolan Company, paying $20,000 in cash and giving a one-year, 9% note for the balance.
3. On September 30, the company discounted at 10% its $120,000, one-year zero-interest-bearing note at First State Bank.

Instructions
(a) Prepare the journal entries necessary to record the transactions above using appropriate dates.
(b) Prepare the adjusting entries necessary at December 31, 2007 in order to properly report interest expense related to the above transactions. Assume straight-line amortization of discounts.
(c) Indicate the manner in which the above transactions should be reflected in the Current Liabilities section of Carson Company's December 31, 2007 balance sheet.
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(a) Prepare the journal entries necessary to record the transactions above using appropriate dates.

The amount is 50,000 and there is a discount of 2% under the terms 2/10, n30. The net amount is 50,000X.98=49,000. The entry is
May 10 Merchandise Inventory Dr 49,000
Accounts Payable Cr 49,000

May 18 Accounts Payable Dr 49,000
Cash 49,000

Since the payment is made in 10 days, the discount is applicable

The entry for June 1 is
June 1 ...

Solution Summary

The solution explains journal entries for transactions relating to accounts and notes payable

$2.19