Question

Should number 17 be recorded as a cash payment or exactly like number 18 in the...

Should number 17 be recorded as a cash payment or exactly like number 18 in the worksheet in interest payable?

Assets Liabilities Equity Cash Flow
Cash AR Allowance Inventory Prepaid Equip Acc. Dep. AP Unearn Rev Int. Pay Warranty Note Pay Bonds Stock R.E. Rev Exp
1. January 1, 2010
2. Sold $200,000 in stock
3. Paid $12,000 for 1 year of rent
4. Received $24,000 for services to be delivered over the coming 12 months
5. Purchased equipment - $30,000, 2% discount, FOB shipping of $600
During the year:
6. On April 1, borrowed $10,000 at 3% interest per year. Interest is payable semi-annually.
7. Purchased inventory on account, $82,000.
8. Sold inventory for $90,000 on account.
9. The inventory had cost $62,000.
10. Collected $81,000 of the sales on account.
11. Paid $82,000 on accounts payable.
12. Purchased inventory on account, $96,000.
13. Paid $70,000 of the accounts payable.
14. Paid salaries of $20,000
15. Estimated that 2% of sales on account will be uncollectible
16. Depreciated equipment using SL, 5-year life, $5,000 estimated salvage
17. Recorded interest on the loan - first semi-annual payment
18. Recorded interest on the loan - year-end adjustment (3 months)
19. Received notice of a lawsuit from a customer. 20. The attorneys believe there is no legal basis.
21. Rent expense
22. Earned Revenue
Ending Balance $          -   $        -   $        -   $         -   $        -   $        -   $        -   $        -   $          -   $        -   $        -   $        -   $        -   $         -   $          -   $         -   $         -   $          -  
Total Assets $          -  
Total Liabilities and Equity $          -  
Business   Accounting   
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Homework Answers

Answer #1

Transaction number 17 must be recorded as cash payment. It is given that first semi-annual interest payment made, which means $150 ($10,000×3%× 6/12) is paid as semi-annual payment. This transaction increases interest expenses account and decreases cash account by $1,500.

Transaction number 18 is year end adjusting entry for interest on loan. This adjustsing entry increases interest expenses account and increases interest payable account by $75 ($10,000×3%× 3/12).

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