[annkasper22]

. Notes payable. Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31:
8/2: Borrowed $75,000 from the Bank of Kingsville by signing a 120-day, 12% note.
8/20: Issued a $40,000 note to Harris Motors for the purchase of a $40,000 delivery truck. The note is due in 180 days and carries a 12% interest rate.
9/10: Purchased inventory from Pans Enterprises in the amount of $15,000. Issued a 30-day, 12% note in settlement of the balance owed.
9/11: Issued a $60,000 note to Datatex Equipment in settlement of an overdue account payable of the same amount. The note is due in 30 days and carries a 14% interest rate.
10/10: The note to Pans Enterprises was paid in full.
10/11: The note to Datatex Equipment was paid in full.
11/30: Paid note to Bank of Kingsville

Instructions
a. Prepare journal entries to record the transactions.
b. Prepare adjusting entries on December 31 to record accrued interest (daily interest is calculated utilizing the 360 day method).
c. Prepare the Current Liability section of Red Bank’s balance sheet as of December 31. Assume that the Accounts Payable account totals $203,600 on this date.

[pready]

Looks like simple journal entries, calculating interest, and preparing a current liability section of a balance sheet. Pretty simple stuff.

[annkasper22]

Well I appreciate your response but if it were that simple to me I would not have asked for help... If you know how to do it, could I convince you to kindly walk me through it so I may see the simplicity of it as well?

[annkasper22]

Looks like simple journal entries, calculating interest, and preparing a current liability section of a balance sheet. Pretty simple stuff.

Well I appreciate your response but if it were that simple to me I would not have asked for help... If you know how to do it, could I convince you to kindly walk me through it so I may see the simplicity of it as well?

[pready]

This is a fairly simple problem. The first step, which was identified by number A is to do your journal entries. So:
8/2 Debit Cash and Credit Notes Payable for the amount given.

8/20 Debit Equipment and Credit Notes Payable for the amount given.

9/10 Debit Inventory and Credit Notes Payable for the amount given.

9/11 Debit Accounts Payable and Credit Notes Payable for the amount given.

Now you have to calculate interest for the next 3 transactions. Your formula is: Principal * Interest Rate * Time, So for your first transaction you will take your principal of $15,000 times 12% times 30/360 to get your interest. Time will be number of days divided by 360 days.

So you next 3 journal entries are:
10/10 Debit Interest Expense for the amount of interest due from the 9/10 transaction, Debit Notes Payable for the amount in the 9/10 Transaction and Credit Cash for the amount of interest and the note payable amount.

10/11 Debit Interest Expense for the amount of interest due from the 9/11 transaction, Debit Notes Payable for the amount of the note in the 9/11 transaction and Credit Cash for the total amount of interest and the note.

11/30 Debit Interest Expense for the amount of interest due from the 8/2 transaction, Debit Notes Payable for the amount of the note from the 8/3 transaction and Credit Cash for the total amount of interest expense and note payable.

Now for number B, you have to calculate interest for the note due in the 8/20 transaction. Your other transactions have been paid and are closed, meaning they have a zero Balance. Your journal entry to record the interest on the 8/20 transaction is: Debit interest Expense for the amount due in the 8/20 transaction and Credit Interest Payable for the same amount.

Finally for number C you have to do the Current Liability section of a balance sheet. Your current liabilities are Accounts Payable with the balance given, Interest Payable with the amount calculated in number B, and Notes Payable for the amount of the note in the 8/20 transaction.

Use your Textbook for the proper format of your Current Liability Section of the Balance Sheet.

[pready]

For number B you have to know the number of days from the date the note was issued to 31 Dec for your calculation for the adjusting entry.

[annkasper22]

Pready,

I just wanted to thank you very much for your detailed explanation and your help. I have a really bad habit of getting the debit's and credits mixed up in the journal entries. You have been very helpful and I just want ed you to know that your help was very much appreciated :) Thank you again!