Problem 13-1 (Part Level Submission) (a) Date Account Titles and Explanation Deb
ID: 2490396 • Letter: P
Question
Problem 13-1 (Part Level Submission)
(a)
Date
Account Titles and Explanation
Debit
Credit
February 2
February 26
April 1
May 1
August 1
September 10
Problem 13-1 (Part Level Submission)
Described below are certain transactions of Edwardson Corporation. The company uses the periodic inventory system.1. On February 2, the corporation purchased goods from Martin Company for $77,400 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 $93,000 from General Motors Company, paying $2,000 in cash and signing a one-year, 12% note for the balance of the purchase price. 3. On May 1, the corporation borrowed $96,000 from Chicago National Bank by signing a $105,360 zero-interest-bearing note due one year from May 1. 4. On August 1, the board of directors declared a $314,200 cash dividend that was payable on September 10 to stockholders of record on August 31.
Explanation / Answer
1. discount terms = 2/10, n/30. It means that a discount of 2% will be given if payment is made within 10 days, otherwise the full payment has to be made within 30 days.
February 2: Purchases (Dr) $75,852
Accounts payable (Cr) $75,852
(Purchases will be recorded after incorporating the 2% discount. Net amount = 77400*(1-2%) = $75,852)
February 26: Accounts payable (Dr) $75,852
Purchase discount lost (Dr) $1,548
Cash (Cr) $77,400
(As payments are made after 10 days, the 2% discount will not be given. The lost discount = 77400 - 75852 = 1548. It will be treated as an expense.
2. April 1: Trucks (Dr) $93,000
Cash (Cr) $2,000
Notes payable (Cr) $91,000
(The total purchase price is debited to the trucks account which is an asset. Notes payable = 93,000 - 2,000 = 91,000)
An entry will be made on 31st December to record the interest amount:
Interest expenses (Dr) $8,190
Interest payable (Cr) $8,190
(91,000*12%*9/12 = 8190)
3. May 1: Cash (Dr) $96,000
Discount on notes payable (Dr) $9,360
Notes payable (Cr) $105,360
(Discount on notes payable = 105360-96000 = 9360)
4. August 1: Retained earnings (Dr) $314,200
Dividends payable (Cr) $314,200
(as dividends have been declared but not paid, a liability will be created in the form of dividends payable).
September 10: Dividends payable (Dr) $314,200
Cash (Cr) $314,200
(when the dividends are paid, the liability account "dividends payable" will be removed from the balance sheet)