Question

Lyon Company had the following transactions: Apr. 8 Issued a $6,000, 60-day, six percent note payable in payment of an account with Bennett Company. May 15 Borrowed $40,000 from Lincoln Bank, signing a 60-day note at nine percent. Jun. 7 Paid Bennett Company the principal and interest due on the April 8 note payable. Jul. 6 Purchased $14,000 of merchandise from Bolton Company; signed a 90-day note with ten percent interest. Jul. 14 Paid the May 15 note due Lincoln Bank. Oct. 2 Borrowed $30,000 from Lincoln Bank, signing a 120-day note at nine percent. Oct. 4 Defaulted on the note payable to Bolton Company. Required a. Record these transactions in general journal form. b. Record any adjusting entries for interest in general journal form. Lyon Company has a December 31 year-end. Round answers to nearest dollar. Use 360 days for interest calculations.

Answer 1

Answer:

Lyon Company

General Journal with adjusting entries for interest expense:

Date         Account Titles                 Debit             Credit

Apr. 8       Accounts payable

                (Bennett Company)      $6,000

                6% Note payable  (Bennett Company) $6,000

To record the issuance of a 60-day note at 6% interest.

May 15      Cash                         $40,000

                 9% Note payable (Lincoln Bank)      $40,000

To record the issuance of a 60-day note at nine percent.

Jun. 7        6% Note payable

                 (Bennett Company) $6,000

                 Interest expense           $60

                 Cash                                                   $6,060

Jul. 6         Inventory                $14,000

                 10% Note payable (Bolton Company) $14,000

To record the purchase of inventory by issuing a 90-day note.

Jul. 14       9% Note payable

                 (Lincoln Bank)     $40,000

                 Interest expense     $600

                 Cash                                                  $40,600

To record the full settlement of the note with interest.

Oct. 2        Cash                 $30,000

                 9% Note payable (Lincoln Bank)     $30,000

To record the issuance of a 120-day note at 9% interest.

Oct. 4 10% Note payable

                 (Bolton Company) $14,000

                 Interest expense       $350

                 Accounts payable (Bolton Company) $14,350

To record the default on payment of the note payable.

Explanation:

a) Data and  Analysis:

Apr. 8 Accounts payable (Bennett Company) $6,000 6% Note payable  (Bennett Company) $6,000 60-day

May 15 Cash $40,000 9% Note payable (Lincoln Bank) $40,000 a 60-day note at nine percent.

Jun. 7 6% Note payable  (Bennett Company) $6,000 Interest expense $60 Cash $6,060

Jul. 6 Inventory $14,000 10% Note payable (Bolton Company) $14,000 a 90-day note

Jul. 14 9% Note payable (Lincoln Bank) $40,000 Interest expense $600 Cash $40,600

Oct. 2 Cash $30,000 9% Note payable (Lincoln Bank) $30,000

a 120-day note

Oct. 4 10% Note payable (Bolton Company) $14,000 Interest expense $350 Accounts payable (Bolton Company) $14,350