Question

Tyrell Co. entered into the following transactions involving short-term liabilities in 2016 and 2017. 2016 Apr. 20 Purchased $40,250 of merchandise on credit from Locust, terms n/30. Tyrell uses the perpetual inventory system. May 19 Replaced the April 20 account payable to Locust with a 90-day, $35,000 note bearing 10% annual interest along with paying $5,250 in cash. July 8 Borrowed $80,000 cash from NBR Bank by signing a 120-day, 9% interest-bearing note with a face value of $80,000. ___

Answer 1

Answer:

The journal entries should be:

April 20, 2016, purchased merchandise on account from Locust:

Dr Merchandise inventory 40,250

    Cr Accounts payable 40,250

May 19, 2016, made a partial payment to Locust and issued a note payable:

Dr Accounts payable 40,250

    Cr Cash 5,250

    Cr Notes payable - Locust 35,000

July 8, 2016, borrowed $80,000 from NBR bank signing a 120 day note:

Dr Cash 80,000

    Cr Notes payable - NBR bank 80,000

August 17, 2016, paid the notes payable to Locust:

Dr Notes payable - Locust 35,000

Dr Interest expense 875 (= 35,000 x 10% x 3/12)

    Cr Cash 35,875

November 5, 2016, paid the bank loan:

Dr Notes payable - NBR bank 80,000

Dr Interest expense 2,400 (= 80,000 x 9% x 4/12)

    Cr Cash 82,400

November 28, 2016, borrowed $42,000 from Fargo bank signing a 60 day note:

Dr Cash 42,000

    Cr Notes payable - Fargo bank 42,000

December 31, 2016, recorded accrued interest owed to Fargo bank:

Dr Interest expense 308

    Cr Accrued interest payable - Fargo bank 308 (= 42,000 x 8% x 33/360)

January 27, 2017, paid the bank loan:

Dr Notes payable - Fargo bank 42,000

Dr Interest expense 252 [= (42,000 x 8% x 2/12) - 308]

Dr Interest payable - Fargo bank 308    

    Cr Cash 42,560