Exercise 132 The following are selected 2017 transactions of

Exercise 13-2

The following are selected 2017 transactions of Novak Corporation.

Prepare journal entries for the selected transactions above. (If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record entries in the order displayed in the problem statement.)

Date

Account Titles and Explanation

Debit

Credit

October 1

Prepare adjusting entries at December 31. (If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,125.)

Date

Account Titles and Explanation

Debit

Credit

December 31

(To record interest on the note)

December 31

(To record discount on the note)

Compute the total net liability to be reported on the December 31 balance sheet for:

Sept. 1		Purchased inventory from Encino Company on account for $61,800. Novak records purchases gross and uses a periodic inventory system.
Oct. 1		Issued a $61,800, 12-month, 8% note to Encino in payment of account.
Oct. 1		Borrowed $61,800 from the Shore Bank by signing a 12-month, zero-interest-bearing $66,160 note.

Solution

A) Journal entry Date Accounting titles & Explanations Debit Credit 1-Sep Purchase account 61,800 Accounts payable 61,800 1-Oct Accounts payable 61,800 Notes payable 61,800 1-Oct Cash 61,800 Discount on notes payable 4,360 Notes payable 66,160 b) Adjusting Entries Date Accounting titles & Explanations Debit Credit 31-Dec Interest expense 1236 interest payable 1,236 (61,800*8%*3/12) 31-Dec interest expense 1090 Discount on notes payable 1,090 (4,360*3/12) C) Total net liability 1) Interest-bearing notes 61,800 interest payable 1,236 63,036 answer 2) Zero interest bearing note 66,160 Discount on note (4,360-1,090) 3,270 62,890 answer