Described below are certain transactions of Edwardson Corporation. The company u
ID: 2453008 • Letter: D
Question
Described below are certain transactions of Edwardson Corporation. The company uses the periodic inventory system.
4
On August 1, the board of directors declared a $319,100 cash dividend that was payable on September 10 to stockholders of record on August 31.
(a) February 2
Purchases ($70,000 X 98%)
Accounts Payable
February 26
Accounts Payable
Purchase Discounts Lost
Cash
April 1
Trucks
Cash
Notes Payable
May 1
Cash
Discount on Notes Payable
Notes Payable
August 1
Retained Earnings (Dividends)
Dividends Payable
September 10
Dividends Payable
Cash
(b) December 31
1. No adjustment necessary
2. Interest Expense ($46,000 X 12% X 9/12)
Interest Payable
3. Interest Expense ($9,000 X 8/12)
Discount on Notes Payable
1. On February 2, the corporation purchased goods from Martin Company for $77,300 subject to cash discount terms of 2/10, n/30. Purchases and accounts payable are recorded by the corporation at net amounts after cash discounts. The invoice was paid on February 26. 2. On April 1, the corporation bought a truck for $54,000 from General Motors Company, paying $3,000 in cash and signing a one-year, 12% note for the balance of the purchase price. 3. On May 1, the corporation borrowed $112,800 from Chicago National Bank by signing a $122,160 zero-interest-bearing note due one year from May 1.4
On August 1, the board of directors declared a $319,100 cash dividend that was payable on September 10 to stockholders of record on August 31.
(a) February 2
Purchases ($70,000 X 98%)
Accounts Payable
February 26
Accounts Payable
Purchase Discounts Lost
Cash
April 1
Trucks
Cash
Notes Payable
May 1
Cash
Discount on Notes Payable
Notes Payable
August 1
Retained Earnings (Dividends)
Dividends Payable
September 10
Dividends Payable
Cash
(b) December 31
1. No adjustment necessary
2. Interest Expense ($46,000 X 12% X 9/12)
Interest Payable
3. Interest Expense ($9,000 X 8/12)
Discount on Notes Payable
4. No adjustment necessary
Explanation / Answer
(a)
(1) Feb 3
DR Purchases $75,754**
Accounts Payable $75,754
(To record purchases on record, net of discount)
** Post-discount purchase = $77,300 x 98% = $75,754
(2) Feb 26
DR Accounts payable $75,754
DR Purchase discount lost $1,546
Cash $77,300
(To record full repayment of accounts payable, recording lost discount)
(3) Apr 1
DR Trucks $54,000
Cash $3,000
Notes Payable $51,000
(To record truck purchased by cash and issuance of note payable)
(4) May 1
DR Cash $112,800
DR Discount on Notes Payable $9,360
Notes Payable $122,160
(To record borrowal against discounted notes payable)
(5) Aug 1
DR Retained earnings (Dividends) $319,100
Dividends Payable $319,100
(To record declaration of dividend)
(6) Sept 10
DR Dividends Payable $319,100
Cash $319,100
(To record payment of dividend)
(7) Dec 31
(a)
DR Interest Expense $4,590**
Interest Payable $4,590
(To record interest payable on Note issued on Apr 1)
Interest expense = $(54,000 - 3,000) x 12% x (9/12)
(b)
DR Interest expense $6,240
Discount on Notes payable $6,240
(To record Interest on zero-coupon bond)
** Interest expense = $(122,160 - 112,800) x 8 /12 = $6,240