ACC 205 Question 2 – Assignment
a. Prepare journal entries to record the transactions.

12/1 Borrowed $20,000 from the First City Bank by signing a 3- month, 15% note payable. Interest and principal are due at maturity.
Dr Cash $20,000
Cr Notes payable $20,000

12/10 Established a warranty liability for the XY-80, a new product. Sales are expected to total 1,000 units during the month. Past experience with similar products indicates that 2% of the units will require repair, with warranty costs averaging $27 per unit (parts only).
Dr Warranty expense 540 (1,000 x 2% x $27)
Cr Warranty liability 540

12/22 Purchased $16,000 of merchandise on account from Oregon Company, terms 2/10, n/30.
Dr Merchandise inventory $16,000
Cr Accounts payable $16,000

12/26 Borrowed $5,000 from First City Bank; signed a 15% note payable due in 60 days. (Assume 360 days for daily interest calculation)
Dr Cash $5,000
Cr Notes payable $5,000

12/31 Repaired six XY-80s during the month at a total cost of $162.
Dr Warranty liability $162
Cr Cash $162

12/31 Accrued 3 days of salaries at a total cost of $1,400.
Dr Salaries expense $1,400
Cr Salaries payable $1,400

b. Prepare adjusting entries on December 31 to record accrued interest for each of the notes payable
First City Bank
$20,000 x 15% x 1/12 = $250 (being 1 mth's interest)

$5,000 x 15% x 5/360 = $10.42 (being int. for 5 days)

Dr Interest expense $260.42
Cr Interest payable $260.42
Hope this helps someone!
ACC 205 Question 2 - Assignment