@ 2012, Cengage Learning Current Liabilities and Payroll LO 1a – Recording Notes Payable.
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@ 2012, Cengage Learning Current Liabilities and Payroll LO 1a – Recording Notes Payable
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Transcript of @ 2012, Cengage Learning Current Liabilities and Payroll LO 1a – Recording Notes Payable.
@ 2012, Cengage Learning
Current Liabilities and Payroll
LO 1a – Recording Notes Payable
Current Liabilities
Long-term liabilities are debts due beyond one year.
Current liabilities are debts that will be paid out of current assets and are due within one year.
LO 1LO 1
Short-Term Notes Payable
Nature’s Sunshine Company issues a 90-day, 12% note for $1,000, dated August 1, 2011, to Murray Co. for a $1,000 overdue account.
LO 1LO 1
Short-Term Notes Payable
When the note matures, the entry to record the payment of $1,000 plus $30 interest ($1,000 * 12% * 90 / 360) is as follows:
LO 1LO 1
Interest Expense Interest Expense appears appears on the income statement on the income statement as an “Other Expense.”as an “Other Expense.”
On May 1, Bowden Co. (borrower) purchased merchandise on account from Coker Co. (creditor), $10,000, 2/10, n/30. The merchandise cost Coker Co. $7,500.
Short-Term Notes PayableLO 1LO 1
Description Debit Credit
Bowden Co. (Borrower)
Mdse. Inventory 10,000Accounts Payable 10,000
Coker Co. (Creditor)Description Debit Credit
Accounts Receivable10,000Sales
10,000
Cost of Mdse. Sold 7,500Mdse. Inventory 7,500
Short-Term Notes PayableLO 1LO 1
Short-Term Notes PayableLO 1LO 1
On May 31, Bowden Co. issued a 60-day, 12% note for $10,000 to Coker Co. on account.
Short-Term Notes PayableLO 1LO 1
Accounts Payable10,000Notes Payable 10,000
Description Debit Credit
Bowden Co. (Borrower)
Notes Receivable 10,000Accounts Receivable
10,000
Coker Co. (Creditor)Description Debit Credit
Short-Term Notes PayableLO 1LO 1
On July 30, Bowden Co. paid Coker Co. the amount due on the note of May 31, the face amount of $10,000 plus interest of $200 ($10,000 * 12% * 60 / 360).
Short-Term Notes PayableLO 1LO 1
Notes Payable 10,000Interest Expense 200
Cash 10,200
Description Debit Credit
Bowden Co. (Borrower)
Cash 10,200Interest Revenue 200Notes Receivable 10,000
Coker Co. (Creditor)Description Debit Credit
Short-Term Notes PayableLO 1LO 1
Notes Payable 10,000Interest Expense 200
Cash 10,200
Description Debit Credit
Bowden Co. (Borrower)
Cash 10,200Interest Revenue 200Notes Receivable 10,000
Coker Co. (Creditor)Description Debit Credit
$10,000 * 12% * 60 / $10,000 * 12% * 60 / 360360
$10,000 * 12% * 60 / $10,000 * 12% * 60 / 360360
Short-Term Notes PayableLO 1LO 1
Notes Payable 10,000Interest Expense 200
Cash 10,200
Description Debit Credit
Bowden Co. (Borrower)
Cash 10,200Interest Revenue 200Notes Receivable 10,000
Coker Co. (Creditor)Description Debit Credit
$10,000 * 12%$10,000 * 12% * 60 / 360* 60 / 360
$10,000 * 12%$10,000 * 12% * 60 / 360* 60 / 360
Short-Term Notes PayableLO 1LO 1
On September 19, Iceburg Company borrowed cash from First National Bank by issuing a $4,000, 90-day, 15% note to the bank.
Short-Term Notes PayableLO 1LO 1
On December 18, Iceburg Company paid First National Bank $4,000 plus interest of $150 ($4,000 * 15% * 90 / 360).
