EXERCISES: SET B
Paradise Lost Company had the following transactions involving notes payable.
Aug. 1, 2010
Borrows $100,000 from Fourth National Bank by signing a 9-month, 12% note.
Dec. 1, 2010
Borrows $120,000 from Sycamore State Bank by signing a 3-month, 10% note.
Dec. 31, 2010
Prepares adjusting entries.
March 1, 2011
Pays principal and interest to Sycamore State Bank.
May 1, 2011
Pays principal and interest to Fourth National Bank.
Prepare journal entries for each of the transactions.
On June 1, Adrean Company borrows $150,000 from Second Bank on a 6-month,
$150,000, 8% note.
Prepare the entry on June 1.
Prepare the adjusting entry on June 30.
Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been
made through November 30.
What was the total financing cost (interest expense)?
In providing accounting services to small businesses, you encounter the following sit-
uations pertaining to cash sales.
Woodrow Company rings up sales and sales taxes separately on its cash register. On April 10,
the register totals are sales $80,000 and sales taxes $4,400.
Penn Company does not segregate sales and sales taxes. Its register total for April 15 is
$44,730, which includes a 6.5% sales tax.
Prepare the entry to record the sales transactions and related taxes for each client.
Barry White Company publishes a monthly music magazine,
Subscriptions to the magazine cost $18 per year. During November 2010, Barry White sells
13,000 subscriptions beginning with the December issue. Barry White prepares financial state-
ments quarterly and recognizes subscription revenue earned at the end of the quarter.The com-
pany uses the accounts Unearned Subscriptions and Subscription Revenue.
Prepare the entry in November for the receipt of the subscriptions.
Prepare the adjusting entry at December 31, 2010, to record subscription revenue earned in
Prepare the adjusting entry at March 31, 2011, to record subscription revenue earned in the
first quarter of 2011.
Hiatt Company sells automatic can openers under a 75-day warranty for defective
merchandise. Based on past experience, Hiatt estimates that 4% of the units sold will become de-
fective during the warranty period. Management estimates that the average cost of replacing or
repairing a defective unit is $16.The units sold and units defective that occurred during the last
2 months of 2010 are as follows.