Following are selected borrowing transactions by Campus Housing Corporation. 1-J
ID: 2576443 • Letter: F
Question
Following are selected borrowing transactions by Campus Housing Corporation.
1-Jun Campus purchased new furniture in exchange for a $500,000 promissory note. The note was due in 6 months and bears interest at 8% per annum.
1-Jul Borrowed cash of $90,000, giving a $100,000 one-year note. The interest is implicit in the difference between the cash borrowed and the note's $100,000 maturity value.
1-Oct Campus was experiencing a temporary cash flow crunch. The company issued a $40,000 one-year note in settlement of an outstanding account payable. The note bears interest at 8% per annum. The agreement with the creditor was that Campus would repay the note as soon as possible, and the total interest would be allocated to each month based on the "rule of 78."
31-Oct Campus paid the note and accrued interest resulting from the October 1 transaction.
1-Nov Borrowed $75,000 cash from a local bank by issuing a 2-year, 6% promissory note. The interest is to be calculated based on actual days, using a 365-day year assumption.
1-Dec Campus paid the note and accrued interest resulting from the June 1 transaction.
(a) Prepare journal entries necessary to record the above transactions.
(b) Prepare year-end adjusting journal entries pertinent to the above borrowing transactions.
(a)
GENERAL JOURNAL
Date Accounts Debit Credit
(b)
GENERAL JOURNAL
Date Accounts Debit Credit
Explanation / Answer
(a)
(b)
CAMPUS HOUSING CORPORATION General Journal for the year Date Accoun Title Debit Credit Jun.1 Furniture 500000 Note payable 500000 (To record purchase of furniture on note payable) Jul.1 Cash 90000 Discount on note payable 10000 Note payable 100000 (To record cash borrowed on note payable and interest expense) Oct.1 Accounts payable 40000 Note payable 40000 (To record settlement of account payable on note payable under rule of 78) Oct.31 Note payable 40000 Interest expense * 492 Cash 40492 (To record settlement of note payable along with interest under rule 12/78) Nov.1 Cash 75000 6% note payable 75000 (To record cash borrowed on 6% note payable) Dec.1 Note payable 500000 Interest expense ** 20000 Cash 520000 (To record settlement of the 8% note payable dated Jun.1) * Interest on note payable = 40,000 x 0.08*12/78 = 492.00 ** Interest expense = 500000 x 0.08 x 6/ 12 =$20,000