On January 1, Luther Co. issued a $1,000,000, five-year, 8% installment note pay
ID: 2410205 • Letter: O
Question
On January 1, Luther Co. issued a $1,000,000, five-year, 8% installment note payable with payments of $250,456 principal plus interest due on January 1 of each year for the next five years.
Required:
Show the account(s) and amount(s) and where it(they) will appear on a classified balance sheet prepared on December 31.
Income Summary
PAGE 1
JOURNAL
1
2
$ reported as Other expense.
Show the account(s) and amount(s) and where it(they) will appear on a classified balance sheet prepared on December 31. Refer to the lists of Amount Descriptions for the exact wording of the answer choices for text entries.
Partial Balance Sheet
1
Current Liabilities:
2
3
4
Long-Term Liabilities:
5
1. Prepare the adjusting journal entry at December 31 to accrue interest for the year. Refer to the Chart of Accounts for exact wording of account titles. 2. Show the account(s) and amount(s) and where it(they) will appear on a multi-step income statement prepared on December 31. 3.Show the account(s) and amount(s) and where it(they) will appear on a classified balance sheet prepared on December 31.
CHART OF ACCOUNTS Luther Co. General Ledger ASSETS 110 Cash 111 Petty Cash 112 Accounts Receivable 113 Allowance for Doubtful Accounts 114 Notes Receivable 115 Interest Receivable 121 Merchandise Inventory 122 Supplies 131 Prepaid Insurance 140 Land 151 Building 152 Accumulated Depreciation-Building 153 Equipment 154 Accumulated Depreciation-Equipment LIABILITIES 210 Accounts Payable 221 Salaries Payable 231 Sales Tax Payable 241 Notes Payable 242 Interest Payable 251 Bonds Payable 252 Discount on Bonds Payable 253 Premium on Bonds Payable EQUITY 310 Luther Marksberry, Capital 311 Luther Marksberry, Drawing 312Income Summary
Amount Descriptions Interest Payable Note Payable Note Payable-Current PortionPAGE 1
JOURNAL
DATE DESCRIPTION POST. REF. DEBIT CREDIT1
2
Show the account(s) and amount(s) and where it(they) will appear on a multi-step income statement prepared on December 31. Interest Expense$ reported as Other expense.
Show the account(s) and amount(s) and where it(they) will appear on a classified balance sheet prepared on December 31. Refer to the lists of Amount Descriptions for the exact wording of the answer choices for text entries.
Partial Balance Sheet
1
Current Liabilities:
2
3
4
Long-Term Liabilities:
5
REVENUE 410 Sales 610 Interest Revenue 611 Gain on Redemption of Bonds EXPENSES 510 Cost of Merchandise Sold 511 Bad Debt Expense 512 Credit Card Expense 513 Cash Short and Over 521 Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Rent Expense 535 Insurance Expense 536 Supplies Expense 551 Depreciation Expense-Building 552 Depreciation Expense-Equipment 590 Miscellaneous Expense 710 Interest Expense 711 Loss on Redemption of BondsExplanation / Answer
1. Adjusting journal entry at December 31 to accrue interest for the year is as shown below:
2. Amount and accounts that will appear in the multi-step Income Statement will be Interest expense which will be shown under Other Expenses for $80,000.
Interest payable of $80,000 will be shown under Current Liabilities in Balance Sheet.
Year Particulars L.F Debit Credit Dec-31 Interest Expense 80,000 Interest payable 80000 (For Interest accrued) 1,000,000*8%