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
