Reference no: EM131961019

Problem

Presented below is a list of possible transactions.

1. Purchased inventory for $80,000 on account (assume perpetual system is used).

2. Issued an $80,000 note payable in payment on account (see item 1 above).

3. Recorded accrued interest on the note from item 2 above at 10%. Assume the note is a one-year note and 3 months have passed.

4. Signed a $100,000 note from the bank by signing a 6-month, zero-interest-bearing note. Prevailing annual interest rate is 10%.

5. Recognized 4 months' interest expense on the note from item 4 above.

6. Recorded sales revenue of $75,260 on account, which includes 5% sales tax.

7. Incurred a contingency loss of $45,000 on a lawsuit. The company's lawyer believes there is a reasonable possibility that the company could lose.

8. Accrued warranty expense of 15,000 on sales.

9. Paid warranty costs that were accrued in item 8 above.

10. Purchased goods for $85,000 subject to a cash discount, terms of 2/10, n/30. Purchases and accounts payable are recorded at net amounts after cash discounts (assume perpetual system is used).

11. Paid the invoice from 10. above, thirty days later.

Required: Record the journal entries for the above transactions.