Question

The following are selected 2017 transactions of Blue Corporation.

Answer 1

Answer:

Blue Corporation

a. Journal Entries:

Sept. 1 Debit Purchases $65,800

Credit Accounts payable (Encino Company) $65,800

To record the purchase of goods on account.

Oct. 1 Debit Accounts payable (Encino Company) $65,800

Credit 7% Note payable (Encino Company) $65,800

To record the issue of a 12-month note payable.

b. Adjusting Journal Entry:

Dec. 31: Debit Interest expense $1,151.50

Credit Interest payable $1,151.50

To record interest expense for the quarter.

c. Total net liability:

7% Note payable (Encino Company) $65,800

Interest payable                                      $1,151.50

Total net liability                                 $66,951.50

Explanation:

a) Data and Analysis:

Sept. 1 Purchases $65,800 Accounts payable (Encino Company) $65,800

Oct. 1 Accounts payable (Encino Company) $65,800 7% Note payable (Encino Company) $65,800

Dec. 31: Interest expense $1,151.50 Interest payable $1,151.50