Completing the recording of the transactions in Sherwood Co. is as follows:
Mar. 1 Debit Inventory $225,000
Credit Accounts Payable (Kirkwood Co.) $225,000
- To record the purchase of goods on account, terms n/30.
Mar. 31 Debit Accounts Payable (Kirkwood Co.) $225,000
Credit Notes Payable (Kirkwood) $225,000
- To record the issuance of a 30-day, 8% note on account.
Apr. 30 Debit Notes Payable (Kirkwood) $225,000
Debit Interest Expense $1,500
Credit Cash $226,500
- To record payment on note payable with interest.
Jun. 1 Debit Cash $600,000
Credit 6% Notes Payable (Triple Creek Bank) $600,000
- To record loan from bank on a 45-day, 6% note.
Jul. 1 Debit Equipment $50,000
Credit Notes Payable (Poulin Co.) $50,000
- To record purchase of tools with 60-day note.
Jul. 16 Debit Interest Expense $4,500
Credit Cash $4,500
- To record the payment of interest expense.
Debit 6% Notes Payable (Triple Creek Bank) $600,000
Credit 7% Notes Payable (Triple Creek Bank) $600,000
- To record the renewal of notes payable with 7% notes.
Aug. 15 Debit 7% Notes Payable (Triple Creek Bank) $600,000
Debit Interest Expense $3,500
Credit Cash $603,500
- To record payment on account with interest.
Aug. 30 Debit Notes Payable (Poulin Co.) $50,000
Credit Cash $50,000
- To record payment on account.
Dec. 1 Debit Equipment $280,000
Credit 9% Notes Payable $200,000 (Greenwood Co.)
Credit Cash $80,000
- To record the purchase of equipment with notes and cash.
Dec. 22 Debit Litigation Loss $40,000
Credit Litigation Claims Payable $40,000
- To record the settlement of a product liability lawsuit.
Dec. 31 Debit Notes Payable (Greenwood Co.) $20,000
Debit Interest Expense $1,500
Credit Cash $21,500
- To record first payment on account with interest.
Adjustments:
a. Debit Product Warranty Expense $65,000
Credit Warranty Liability $65,000
- To record product warranty expense.
b. Debit Interest Expense $13,500
Credit Interest Payable $13,500
- To accrue interest for the nine remaining notes.
Data Analysis:
Mar. 1 Inventory $225,000 Accounts Payable (Kirkwood Co.) $225,000 terms n/30.
Mar. 31 Accounts Payable (Kirkwood Co.) $225,000 Notes Payable (Kirkwood) $225,000 30-day, 8% note
Apr. 30 Notes Payable (Kirkwood) $225,000 Interest Expense $1,500 Cash $226,500
Jun. 1 Cash $600,000 6% Notes Payable (Triple Creek Bank) $600,000
a 45-day, 6% note.
Jul. 1 Equipment $50,000 Notes Payable (Poulin Co.) $50,000
60-day note to Poulin Co., which discounted the note at the rate of 6%.
Jul. 16 Interest Expense $4,500 Cash $4,500 7% Notes Payable (Triple Creek Bank) $600,000 6% Notes Payable (Triple Creek Bank) $600,000
Aug. 15 7% Notes Payable (Triple Creek Bank) $600,000 Interest Expense $3,500 Cash $603,500
Aug. 30 Notes Payable (Poulin Co.) $50,000 Cash $50,000
Dec. 1 Equipment $280,000 9% Notes Payable $200,000 (Greenwood Co.) Cash $80,000
Dec. 22 Litigation Loss $40,000 Litigation Claims Payable $40,000
Dec. 31 Notes Payable (Greenwood Co.) $20,000 Interest Expense $1,500 Cash $21,500
Adjustments:
a. Product Warranty Expense $65,000 Warranty Liability $65,000
b. Interest Expense $13,500 Interest Payable $13,500
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