Answer:
Ehler Corporation
a) Journal Entries:
Sept. 1 Debit Inventory $12,000
Credit 6%, 3-month Notes Payable (Pippen) $12,000)
To record issuance of note to purchase inventory.
Sept. 30 Debit Interest expense $60
Credit Interest Payable $60
To accrue interest expense ($12,000 * 6% * 1/12).
Oct. 1 Debit Climbing Wall $16,500
Credit 8%, 4-month Note Payable (Prime Bank) $16,500
To record issuance of note payable to purchase climbing wall.
Oct. 31 Debit Interest expense $170
Credit Interest payable $170
To accrue interest expense ($60 + $16,500 * 8% * 1/12).
Nov. 1 Debit Vehicle $26,000
Credit Cash $8,000
Credit 6%, 12-month Note Payable $18,000
To record the purchase of a new vehicle for climbers.
Nov. 30 Debit Interest expense $260
Credit Interest payable $260
To accrue interest expense ($170 + $18,000 * 6% * 1/12).
Dec. 1 Debit 6% Notes Payable (Pippen) $12,000)
Debit Interest payable $180
Credit Cash $12,180
To record the payment of principal and interests.
Dec. 31 Debit Interest expense $200
Credit Interest payable $200
To accrue interest expense ($110 + $90)
b) T-accounts:
Notes Payable
Date Account Titles Debit Credit
Sept. 1 Inventory $12,000
Oct. 1 Climbing Wall 16,500
Nov. 1 Vehicle 18,000
Dec. 1 Cash $12,000
Dec. 31 Balance 34,500
Interest Payable
Date Account Titles Debit Credit
Sept. 30 Interest expense $60
Oct. 31 Interest expense 170
Nov. 30 Interest expense 260
Dec. 1 Cash $180
Dec. 31 Interest expense 200
Dec. 31 Balance $510
Interest Expense
Date Account Titles Debit Credit
Sept. 30 Interest payable $60
Oct. 31 Interest payable 170
Nov. 30 Interest payable 260
Dec. 31 Interest payable 200
Dec. 31 Income summary $690
c) Balance Sheet:
Current liabilities:
Interest payable $510
Notes payable $34,500
d) Total interest expense = $690
Explanation:
a) Data and Analysis:
Sept. 1 Inventory $12,000 6% Notes Payable (Pippen) $12,000) to purchase inventory. The 3-month note payable
Sept. 30 Interest expense $60 Interest payable $60 ($12,000 * 6% * 1/12)
Oct. 1 Climbing Wall $16,500 8%, 4-month Note Payable (Prime Bank) $16,500
Oct. 31 Interest expense $170 Interest payable $170 ($60 + $16,500 * 8% * 1/12)
Nov. 1 Vehicle $26,000 Cash $8,000 6%, 12-month Note Payable $18,000
Nov. 30 Interest expense $260 Interest payable $260 ($170 + $18,000 * 6% * 1/12)
Dec. 1 6% Notes Payable (Pippen) $12,000) Interest payable $180 Cash $12,180
Dec. 31 Interest expense $200 Interest payable $200
