The following are selected 2011 transactions of Darby Corporation.
Sept. 1 Purchased inventory from Orion Company on account for $50,000. Darby records purchases gross and uses a periodic inventory system.
Oct. 1 Issued a $50,000, 12-month, 8% note to Orion in payment of Darby's account.
1 Borrowed $75,000 from the bank by signing a 12-month, non-interest-bearing $81,000 note.
(a) Prepare journal entries for each transaction.
(b) Prepare adjusting entries at December 31, 2011.
(c) Calculate the net liability, in total, to be reported on the December 31, 2011 balance sheet for the following:
1. The interest-bearing note
2. The non-interest-bearing note
(d) Prepare the journal entries for the payment of the notes at maturity.
(e) Repeat part (d) assuming the company uses reversing entries (show the reversing entries at January 1, 2012). Would the use of reversing entries be efficient for both types of notes?

  • CreatedAugust 23, 2015
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