Question

Described below are certain transactions of Crane Company for 2021:

1. On May 10, the company purchased goods from Fox Company for $76,800, terms 2/10, n/30. Purchases and accounts payable are recorded at net amounts. The invoice was paid on May 18.

2. On June 1, the company purchased equipment for $94,800 from Rao Company, paying $33,600 in cash and giving a one-year, 9% note for the balance.

3. On September 30, the company discounted at 11% its $200,000, one-year zero-interest-bearing note at Virginia State Bank, receiving $180,000.

Required:

(a) Prepare the journal entries necessary to record the transactions above using appropriate dates.

Answer 1

Answer and Explanation:

a. The journal entries are shown below:

On May 10

Merchandise inventory Dr $75,924 ($76,800 × 0.98)

To Account payable $75,924

(Being merchandise inventory is purchased on account)

For recording this we debited the merchandise inventory as it increased the assets and credited the account payable as it also increased the liabilities

On May 18

Account payable Dr

To Cash

(Being the cash paid is recorded)

For recording this we debited the account payable as it decreased the liabilities and credited the cash as it reduced the assets

2. On June 1

Equipment Dr $94,800

To cash Dr $33,600

To 9% Note payable $61,200

(Being the equipment is purchased on cash and note payable)

For recording this we debited the equipment as it increased the assets and credited the account payable and cash as it also increased the liabilities and reduced the assets

3. On Sep 30

Cash Dr $180,000

Discount on note payable $20,000

To Note payable $200,000

(Being the interest bearing note is recorded)

For recording this we debited the cash as it increased the assets and credited the note payable as it also increased the liabilities and the difference is debited to note payable