Liability transactions

Instructions

The following items were selected from among the transactions completed by Sherwood Co. during the current year:

Mar. 1 Purchased merchandise on account from Kirkwood Co., $175,000, terms n/30.
31 Issued a 30-day, 6% note for $175,000 to Kirkwood Co., on account.

Apr. 30 Paid Kirkwood Co. the amount owed on the note of March 31.

Jun. 1 Borrowed $400,000 from Triple Creek Bank, issuing a 45-day, 5% note.
Jul. 1 Purchased tools by issuing a $45,000, 60-day note to Poulin Co., which discounted the

note at the rate of 7%.

16 Paid Triple Creek Bank the interest due on the note of June 1 and renewed the loan by

issuing a new 30-day, 6% note for $400,000. (Journalize both the debit and credit to

the notes payable account.)

Aug. 15 Paid Triple Creek Bank the amount due on the note of July 16.

30 Paid Poulin Co. the amount due on the note of July 1.

Dec. 1 Purchased equipment from Greenwood Co. for $260,000, paying $40,000 cash and

issuing a series of ten 9% notes for $22,000 each, coming due at 30-day intervals.

22 Settled a product liability lawsuit with a customer for $50,000, payable in January.
Accrued the loss in a litigation claims payable account.

31 Paid the amount due to Greenwood Co. on the first note in the series issued on
December 1.

Required:
1. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year.

2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year (refer to the Chart of
Accounts for exact wording of account titles):
a. Product warranty cost, $80,000.

b. Interest on the nine remaining notes owed to Greenwood Co. Assume a 360-day year.

Chart of Accounts
 CHART OF ACCOUNTS

Sherwood Co.
General Ledger

ASSETS REVENUE

110 Cash 410 Sales

111 Accounts Receivable 610 Interest Revenue

112 Interest Receivable

113 Notes Receivable EXPENSES

115 Inventory 510 Cost of Goods Sold

116 Supplies 520 Salaries Expense

118 Prepaid Insurance 524 Depreciation Expense-Building

120 Land 525 Delivery Expense

123 Building 526 Repairs Expense

124 Accumulated Depreciation-Building 529 Selling Expenses

125 Office Equipment 531 Rent Expense

126 Accumulated Depreciation-Office Equipment 532 Depreciation Expense-Office Equipment

127 Tools 533 Depreciation Expense-Tools

128 Accumulated Depreciation-Tools 534 Insurance Expense

535 Supplies Expense

LIABILITIES 536 Payroll Tax Expense

210 Accounts Payable-Kirkwood Co. 537 Vacation Pay Expense

211 Accounts Payable-Greenwood Co. 538 Pension Expense

212 Accounts Payable-Poulin Co. 539 Cash Short and Over

213 Interest Payable 540 Product Warranty Expense

214 Notes Payable 541 Miscellaneous Expense

215 Salaries Payable 710 Interest Expense

216 Social Security Tax Payable 720 Litigation Loss

217 Medicare Tax Payable

218 Employees Federal Income Tax Payable

219 Employees State Income Tax Payable

220 Group Insurance Payable

221 Bond Deductions Payable

224 Federal Unemployment Tax Payable

225 State Unemployment Tax Payable

226 Vacation Pay Payable

227 Unfunded Pension Liability

228 Product Warranty Payable

229 Litigation Claims Payable

EQUITY

310 Common Stock

311 Retained Earnings

312 Dividends

313 Income Summary

Journal

1. Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year. Scroll down to access page 12 of the journal.

PAGE 11

JOURNAL ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1 Mar. 1 Inventory 175,000.00

2 Accounts Payable-Kirkwood Co. 175,000.00
3 Mar. 31 Accounts Payable-Kirkwood Co. 175,000.00
4 Notes Payable 175,000.00
5 Apr. 30 Notes Payable 175,000.00
6 Interest Expense 875.00
7 Cash 175,875.00
8 Jun. 1 Cash 400,000.00
9 Notes Payable 400,000.00
10 Jul. 1 Tools 44,475.00
11 Interest Expense 525.00
12 Notes Payable 45,000.00
13 Jul. 16 Notes Payable 400,000.00
14 Interest Expense 2,500.00
15 Notes Payable 400,000.00
16 Cash 2,500.00
17 Aug. 15 Notes Payable 400,000.00
18 Interest Expense 2,000.00
19 Cash 402,000.00
20 Aug. 30 Notes Payable 45,000.00
21 Cash 45,000.00
22 Dec. 1 Office Equipment 260,000.00
23 Notes Payable 220,000.00
24 Cash 40,000.00
25 Dec. 22 Litigation Loss 50,000.00
26 Litigation Claims Payable 50,000.00
27 Dec. 31 Notes Payable 22,000.00
28 Interest Expense 165.00
29 Cash 22,165.00

2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year (refer to the Chart of

Accounts for exact wording of account titles):

a. Product warranty cost, $80,000.

b. Interest on the nine remaining notes owed to Greenwood Co. Assume a 360-day year.

PAGE 12

JOURNAL ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1 Adjusting Entries
2 Dec. 31 Product Warranty Expense 80,000.00
3 Product Warranty Payable 80,000.00
4 Dec. 31 Interest Expense 1,485.00
5 Interest Payable 1,485.00