Question

Described below are certain transactions of L Company for 2021:

1. On May 10, the company purchased goods from F Company for $80,000, terms 3/10, n/30. The invoice was paid on May 23.

2. On June 1, the company purchased equipment for $150,000 from R Company, paying $40,000 in cash and giving a one-year, 9% note for the balance.

3. On October 30, the company discounted at 11% its $300,000, one-year zero-interest-bearing note at Virginia State Bank, receiving $270,000.

Instructions

(a) Prepare the journal entries necessary to record the transactions above using appropriate dates.

(b) Prepare the adjusting entries necessary at December 31, 2021 in order to properly report interest expense related to the above transactions. Assume straight-line amortization of discounts.

(c) Indicate the manner in which the above transactions should be reflected in the Current Liabilities section of Lamar Company's December 31, 2021 balance sheet.

Answer 1

(c).The 9% note issued in part payment against purchase of equipment is appeared in current liabilities section of balance sheet of L Company.