Answer:
Sherwood Co.
1. Journal Entries:
March 1:
Debit Purchases $175,000
Credit Accounts Payable (Kirkwood Co.) $175,000
To document merchandise acquisition on credit, terms, n/30.
March 31:
Debit Accounts Payable (Kirkwood Co.) $175,000
Credit Notes Payable (Kirkwood Co.) $175,000
To record the issuance of a 30-day, 6% note.
April 30:
Debit Notes Payable (Kirkwood Co.) $175,000
Debit Interest on Notes $875
Credit Cash Account $175,875
To register the settlement of note and related interest.
June 1:
Debit Cash Account $400,000
Credit Bank Note Payable (Triple Creek Bank) $400,000
To document a 45-day, 5% bank note.
July 1:
Debit Equipment (Tools) $45,000
Credit Notes Payable (Poulin Co.) $45,000
To document tools purchase and issuance of a 60-day note.
July 16:
Debit Interest on Bank Notes $2,500
Credit Cash Account $2,500
To record interest payment due.
July 16:
Debit Bank Note Payable (Triple Creek Bank) $400,000
Credit Bank Note Payable (Triple Creek Bank) $400,000
To register the renewal of loan with new issuance of a 30-day, 6% note.
August 15:
Debit Bank Note Payable (Triple Creek Bank) $400,000
Debit Interest on Notes $2,000
Credit Cash Account $402,000
To capture payment of overdue amount.
Dec. 1:
Debit Equipment $260,000
Credit Cash Account $40,000
Credit Notes Payable (Greenwood Co.) $220,000
To register equipment purchase and issuance of a series of ten 9% notes for $22,000 each, maturing at 30-day intervals.
Dec. 22:
Debit Litigation Loss $50,000
Credit Litigation Claims Payable $50,000
To capture settled product liability claim.
Dec. 31:
Debit Notes Payable $22,000
Debit Interest on Notes $165
Credit Cash Account $22,165
To document note payment settlement.
2) Adjusting Entries:
a) Product Warranty Cost
Debit Product Warranty $80,000
Credit Product Warranty Payable $80,000
To account for accrued product warranty costs.
b) Interest on remaining notes to Greenwood Co.
No journal entries needed.
Explanation:
a) The interest associated with residual notes to Greenwood Co. has not yet matured for payment as of December 31, hence no accrual is necessary.
b) Journal entries function to capture transactional activities as they transpire daily and discretely. They delineate which accounts necessitate debits and which necessitate credits within the General Ledger. Journals serve as the initial point of record. This indicates they first log each financial occurrence in the accounting records.
c) Adjusting entries are made to recognize revenues and expenses to adhere to the accrual principle and matching guideline in US GAAP.
d) Expenses for product warranties are recognized only when incurred under warranty provisions, or can be structured as an allowance, where a standard sum is charged to expenses each month.
