E13-2 The following are selected 2010 transactions of Darby Corporation. Sept. 1 Oct. Oct. 1 Oct. Oct. 1
Purchased inventory from Orion company on account for $50,000. Darby records purchases gros Issu Issued ed a $50, $50,000 000,, 1212-mon month th,, 8% note note to to Ori Orion on in payme payment nt of accou account nt.. Borrowed Borrowed $75,000 $75,000 from from the the Sh Shore ore Bank Bank b byy sign signing ing a 12-mo 12-month nth,, zerozero-int interes erest-b t-bear earing ing $81,000 $81,000 no
Instructions a. Prepare journal entries for the selected ttransactions above. The journal entries are Se p 1 Purchases Accounts Payable
50,000
Oct 1
Accounts Payable Notes Payable
50,000
Cash Discount on notes payable Notes Payable
75,000 6,000
Oct 1
In the periodic system inventory p 50,000
50,000 The accounts payable is converted
Face value is 81,000 and cash recei 81,000 difference is discount
b. Prepare adjusting entries at December 31. The adjusting entry would relate to accrual of interest Interest for 3 month on Orion note = 50,000 X 8% X 3/12 = Interest for 3 months bank note = 6,000 X 3/12 = The adjusting entry is Dec 31 Interest Expense 1,000 Interest Payable Dec 31
Interest Expense Discount on Notes Payable
1,000 1,500 Total interest is 6,000
1,000
1,500 1,500
c. Comute the total net liability to be reported on the december 31 balance sheet for: 1. the interest-bearing note. 2. the zero-interest-bearing note. 1. The net liability for interest bearing note = 50,000 principal + 1,000 interest = 51,000 2. The net liability for zero-interest bearing note = 81,000 - (6,000-1,500) = $76,500
and uses a periodic inventory system. e.
rchases are recorded in Purchase account
to notes payable
ved is 75,000 so
hich is the discount, so we calculate the amount for 3 months
