Question

Pina Corporation sells rock-climbing products and also operates an indoor climbing facility for climbing enthusiasts. During the last part of 2017, Pina had the following transactions related to notes payable.
Sept. 1 Issued a $16,800 note to Pippen to purchase inventory. The 3-month note payable bears interest of 8% and is due December 1. (Pina uses a perpetual inventory system.)
Sept. 30 Recorded accrued interest for the Pippen note.
Oct. 1 Issued a $21,600, 9%, 4-month note to Prime Bank to finance the purchase of a new climbing wall for advanced climbers. The note is due February 1.
Oct. 31 Recorded accrued interest for the Pippen note and the Prime Bank note.
Nov. 1 Issued a $26,400 note and paid $8,800 cash to purchase a vehicle to transport clients to nearby climbing sites as part of a new series of climbing classes. This note bears interest of 7% and matures in 12 months.
Nov. 30 Recorded accrued interest for the Pippen note, the Prime Bank note, and the vehicle note.
Dec. 1 Paid principal and interest on the Pippen note.
Dec. 31 Recorded accrued interest for the Prime Bank note and the vehicle note.

Required:
Prepare journal entries for the transactions noted above.

Answer 1

Answer:

Pina Corporation

Journal Entries:

Sept 1:

Debit Inventory $16,800

Credit Notes Payable (Pippen) $16,800

To record the issue of a 3-month note payable with interest of 8%

Sept. 30:

Debit Interest Expense on Note ($16,800 * 8%/12) $112

Credit Interest Payable $112

To accrue interest for the note payable.

Oct. 1:

Debit  Equipment (Climbing Wall) $21,600

Credit Notes Payable (Prime Bank) $21,600

To record the issue of a 4-month note, with 9% interest.

Oct. 31:

Debit Interest Expense on Note ($16,800 * 8%/12) $112

Credit Interest Payable $112

To accrue interest for the note payable.

Debit Interest Expense on Note ($21,600 * 9%/12) $162

Credit Interest Payable $162

To accrue interest for the note payable.

Nov. 1:

Debit Vehicles $35,200

Credit Notes Payable $26,400

Credit Cash $8,800

To record the purchase of a vehicle via a 12- month notes payable at 7% interest.

Nov. 30:

Debit Interest Expense on Note ($16,800 * 8%/12) $112

Credit Interest Payable $112

To accrue interest for the note payable.

Debit Interest Expense on Note ($21,600 * 9%/12) $162

Credit Interest Payable $162

To accrue interest for the note payable.

Debit Interest Expense on Note ($35,200 * 7%/12) $205

Credit Interest Payable $205

To accrue interest for the note payable.

Dec. 1:

Debit Notes Payable (Pippen) $16,800

Debit Interest Payable $336

Credit Cash $17,136

To record the payment of Notes to Pippen with interest.

Dec. 31:

Debit Interest Expense on Note ($21,600 * 9%/12) $162

Credit Interest Payable $162

To accrue interest for the note payable.

Debit Interest Expense on Note ($35,200 * 7%/12) $205

Credit Interest Payable $205

To accrue interest for the note payable.

Explanation:

The general journal is used to record transactions as they occur while the general ledger records details about each account and summarizes the balances at the end of the accounting period into the trial balance.  Accounting records are based on the double-entry system and follow the accounting equation of Assets = Liabilities + Equity.  Every business transaction  at Pina Corporation involves two or more accounts.  One or two are debited or credited, as the case may be.