Instructions Eddie Edwards and Phil Bell own and operate The

Instructions Eddie Edwards and Phil Bell own and operate The Second Hand Equipment Shop. The following transactions involving notes and interest were completed during the last three months of 20- Oct. 1 15 1 I 20 30 10 issued a $6,800, 60-day, 5% note to Mac Farm Equipment for purchase of merchandise. Received a $2,000, 60-day, 6% note from R. Chambers in payment for sale of merchandise Discounted the note received from R. Chambers on October 15 at Merchants Natonal Bank·The discount ale s 7%. Borrowed S5,000 from First National Bank on a three-month, non-interestbearing note that was discounted at 5%. Received a $4,000, 90-day, 6.5% note from L. Revsine in payment of an account receivable. Issued a check to Mac Farm Equipment in payment of the note issued on October 1, including interest. Issued a $3.000, 90-day, 6% note to Remak Tractors to extend time for payment of an account payable. Nov. Dec. 16 Received notification from Merchants National Bank that R. Chambers has dishonored his note. A check is issued to cover the note plus a $20 bank fee that must be paid to the bank. Required 1. Prepare general journal entries for the transactions. 2. Prepare necessary adjusting entries for the notes outstanding on December 31.

Solution

Journalise the following transactions:

General journal

Date

Account Title and Explanations

Ref.

Debit ($)

Credit ($)

oct. 1

Supplies

6,800

         Notes payable 5%

6,800

To record the issue of 60 day notes payable for purchase of merchandise

oct. 15

Notes receivable 6%

2,000

       R chambers

2,000

To record the receipt of notes receivable

Nov. 1

Cash

1,977

Interest expense 2,000*15%*60/360

23.33

        Notes receivable 6%

2,000

To record the discounting of notes receivable

nov. 1

Cash

4,925

discount on notes payable

75

         notes payable ( non-interest bearing)

5,000

To record the notes payable, issued at discount

nov. 20

notes receivable 6.5%

4,000

      L. Revsine

4,000

To record the receipt of notes receivable

Nov. 30

Interest expense (6,800 * 60/360*5%)

1-Oct

57

       notes payable 5%

57

To record the interest exepense

Nov. 30

Notes payable 5%

6,857

        Cash

6,857

To record the payment of accounts payable to Mac farm

Dec. 10

notes payable 6% 90 days

3,000

       remak tractors

3,000

To record the issue of notes receivable

16-Dec

r. Chambers

2,020

      Notes receivable

2,000

      Interest revenue

20

16-Dec

merchants national bank

2,020

        Cash

2,020

To record the issue of cheque for dishonour of discounted notes payable

Date	Account Title and Explanations	Ref.	Debit ($)	Credit ($)
oct. 1	Supplies		6,800
	Notes payable 5%			6,800
	To record the issue of 60 day notes payable for purchase of merchandise
oct. 15	Notes receivable 6%		2,000
	R chambers			2,000
	To record the receipt of notes receivable
Nov. 1	Cash		1,977
	Interest expense 2,000*15%*60/360		23.33
	Notes receivable 6%			2,000
	To record the discounting of notes receivable
nov. 1	Cash		4,925
	discount on notes payable		75
	notes payable ( non-interest bearing)			5,000
	To record the notes payable, issued at discount
nov. 20	notes receivable 6.5%		4,000
	L. Revsine			4,000
	To record the receipt of notes receivable
Nov. 30	Interest expense (6,800 * 60/360*5%)	1-Oct	57
	notes payable 5%			57
	To record the interest exepense
Nov. 30	Notes payable 5%		6,857
	Cash			6,857
	To record the payment of accounts payable to Mac farm
Dec. 10	notes payable 6% 90 days		3,000
	remak tractors			3,000
	To record the issue of notes receivable
16-Dec	r. Chambers		2,020
	Notes receivable			2,000
	Interest revenue			20
16-Dec	merchants national bank		2,020
	Cash			2,020
	To record the issue of cheque for dishonour of discounted notes payable