Question

Described below are certain transactions of Sheridan Corporation. The company uses the periodic inventory system.

1. On February 2, the corporation purchased goods from Martin Company for $69,500 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 $50,000 from General Motors Company, paying $3,000 in cash and signing a one-year, 12% note for the balance of the purchase price.
3. On May 1, the corporation borrowed $88,300 from Chicago National Bank by signing a $98,140 zero-interest-bearing note due one year from May 1.
4. On August 1, the board of directors declared a $302,000 cash dividend that was payable on September 10 to stockholders of record on August 31.

Make all the journal entries necessary to record the transactions above using appropriate dates.

Answer 1

Answer and Explanation:

1.

Feb 2

Dr PURCHASES ($69,500 X 98%)$68,110

Cr ACCOUNTS PAYABLE $68,110

Feb 16

Dr ACCOUNTS PAYABLE $68,110

Dr PURCHASE DISCOUNTS LOST $1,390

Cr CASH $69,500

Dec 31

NO ADJUSTMENT NECESSARY

2.

April 1

Dr TRUCKS $50,000

Cr CASH $3,000

Cr NOTES PAYABLE $47,000

Dec 31

Dr INTEREST EXPENSE $4,230

Cr INTEREST PAYABLE $4,230

$47,000 PRINCIPAL X 12% INTEREST X 9/12 MONTHS = $4,230

3.

May 1

Dr CASH 88,300

Dr DISCOUNT ON NOTES PAYABLE $9,840

CrNOTES PAYABLE $98,140

Dec 31

Dr INTEREST EXPENSE $6,560

Cr DISCOUNT ON NOTES PAYABLE $6,560

$9,840 DISCOUNT X 8/12 MONTHS (STRAIGHT-LINE) = $6,560