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Question(s) / Instruction(s):

ABC Company borrows money from a bank by issuing a 90 day, 6%, $5,000 note on November 1.

 

Required:

 

Prepare properly dated and formatted journal entries to:

1)      Record the Journal entry needed when the note was issued

2)      Record the journal entry to record the interest as of December 31

3)      Record the journal entry when the note matures and is paid.

 

Hint:

 

See page 373 end of period interest adjustment.  As the book notes on page 372 in red print, it’s common to use 360 days as a year.  Follow this convention.

 

Part 2

 

On September 21, 2009, Lawn Outfitters sells a riding mower for $3,000 with a one-year warranty that covers parts.  Warranty expense is estimated at 4% of sales. On July 24, 2010, the mower is brought in for repairs covered under the warrantee requiring $55 in materials taken from the Repair Parts Inventory.

 

Required:

 

1)      Prepare a properly dated and formatted Journal Entry regarding the Estimated Warrantee Liability and Warrantee Expense at the time of the sale, and

2)      A properly dated and formatted Journal Entry recording the repair.

 

Hint:

 

See pages 378 – 379.

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