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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. 1 Borrowed $400,000 from Triple Creek Bank, issuing a 45-day, 5% note.

Jun.

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 OFACCOUNTS

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

Earnings 312 Dividends 313 Income Summary Journal 1. Journalize the transactions. Refer to the Chart
Journal 1. Journalize the transactions. Refer to the Chart of Accounts for exact wording of
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

4 Notes Payable   175,000.00   ↑  

Notes Payable

 
4 Notes Payable   175,000.00   ↑  
175,000.00
175,000.00
 

 

5

Apr. 30
Apr. 30

Notes Payable

 
175,000.00
175,000.00
5 Apr. 30 Notes Payable   175,000.00   ↓  
 

 

6

6 Interest Expense   875.00     ↓

Interest Expense

 
875.00
875.00
6 Interest Expense   875.00     ↓
   

7

7 Cash   175,875.00   ↓    

Cash

 
7 Cash   175,875.00   ↓    
175,875.00
175,875.00
 

   

8

Jun. 1
Jun. 1

Cash

 
400,000.00
400,000.00
8 Jun. 1 Cash   400,000.00   ↑    
 

   

9

9 Notes Payable   400,000.00   ↑  

Notes Payable

 
9 Notes Payable   400,000.00   ↑  
400,000.00
400,000.00
 

 

10

Jul. 1
Jul. 1

Tools

 
44,475.00
44,475.00
10 Jul. 1 Tools   44,475.00   ↑    
 

   

11

11 Interest Expense   525.00     ↓

Interest Expense

 
525.00
525.00
11 Interest Expense   525.00     ↓
   

12

12 Notes Payable   45,000.00   ↑  

Notes Payable

 
12 Notes Payable   45,000.00   ↑  
45,000.00
45,000.00
 

 

13

Jul. 16
Jul. 16

Notes Payable

 
400,000.00
400,000.00
13 Jul. 16 Notes Payable   400,000.00   ↓  
 

 

14

14 Interest Expense   2,500.00     ↓

Interest Expense

 
2,500.00
2,500.00
14 Interest Expense   2,500.00     ↓
   

15

15 Notes Payable   400,000.00   ↑  

Notes Payable

 
15 Notes Payable   400,000.00   ↑  
400,000.00
400,000.00
 

 

16

16 Cash   2,500.00   ↓    

Cash

 
16 Cash   2,500.00   ↓    
2,500.00
2,500.00
 

   

17

Aug. 15
Aug. 15

Notes Payable

 
400,000.00
400,000.00
17 Aug. 15 Notes Payable   400,000.00   ↓  
 

 

18

18 Interest Expense   2,000.00     ↓

Interest Expense

 
2,000.00
2,000.00
18 Interest Expense   2,000.00     ↓
   

19

19 Cash   402,000.00   ↓    

Cash

 
19 Cash   402,000.00   ↓    
402,000.00
402,000.00
 

   

20

Aug. 30
Aug. 30

Notes Payable

 
45,000.00
45,000.00
20 Aug. 30 Notes Payable   45,000.00   ↓  
 

 

21

21 Cash   45,000.00   ↓    

Cash

 
21 Cash   45,000.00   ↓    
45,000.00
45,000.00
 

   

22

Dec. 1
Dec. 1

Office Equipment

 
260,000.00
260,000.00
22 Dec. 1 Office Equipment   260,000.00   ↑    
 

   

23

23 Notes Payable   220,000.00   ↑  

Notes Payable

 
23 Notes Payable   220,000.00   ↑  
220,000.00
220,000.00
 

 

24

24 Cash   40,000.00   ↓    

Cash

 
24 Cash   40,000.00   ↓    
40,000.00
40,000.00
 

   

25

Dec. 22
Dec. 22

Litigation Loss

 
50,000.00
50,000.00
25 Dec. 22 Litigation Loss   50,000.00     ↓
   

26

26 Litigation Claims Payable   50,000.00   ↑  

Litigation Claims Payable

 
26 Litigation Claims Payable   50,000.00   ↑  
50,000.00
50,000.00
 

 

27

Dec. 31
Dec. 31

Notes Payable

 
22,000.00
22,000.00
27 Dec. 31 Notes Payable   22,000.00   ↓  
 

 

28

28 Interest Expense   165.00     ↓

Interest Expense

 
165.00
165.00
28 Interest Expense   165.00     ↓
   

29

29 Cash   22,165.00   ↓    

Cash

 
29 Cash   22,165.00   ↓    
22,165.00
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
PAGE 12
 

JOURNAL

ACCOUNTING EQUATION

 

DATE

DESCRIPTION

POST. REF.

DEBIT

CREDIT

 

ASSETS

LIABILITIES

EQUITY

1

 

Adjusting Entries

           

2

Dec. 31
Dec. 31

Product Warranty Expense

 
80,000.00
80,000.00
2 Dec. 31 Product Warranty Expense   80,000.00     ↓
   

3

3 Product Warranty Payable   80,000.00   ↑  

Product Warranty Payable

 
3 Product Warranty Payable   80,000.00   ↑  
80,000.00
80,000.00
 

 

4

Dec. 31
Dec. 31

Interest Expense

 
1,485.00
1,485.00
4 Dec. 31 Interest Expense   1,485.00     ↓
   

5

5 Interest Payable   1,485.00   ↑  

Interest Payable

 
5 Interest Payable   1,485.00   ↑  
1,485.00
1,485.00