P10-2A

Journalize and post note transactions; show balance sheet presentation.

(LO 2, 7), AP

Ermlar Corporation sells rock-climbing products and also operates an indoor climbing facility for climbing enthusiasts. During the last part of 2014, Ermlar had the following transactions related to notes payable.

Sept.	1	Issued a $12,000 note to Lippert to purchase inventory. The 3-month note payable bears interest of 6% and is due December 1. (Ermlar uses a perpetual inventory system.)
Sept.	30	Recorded accrued interest for the Lippert note.
Oct.	1	Issued a $16,500, 8%, 4-month note to Shanee Bank to finance the purchase of a new climbing wall for advanced climbers. The note is due February 1.
Oct.	31	Recorded accrued interest for the Lippert note and the Shanee Bank note.
Nov.	1	Issued a $26,000 note and paid $8,000 cash to purchase a vehicle to transport clients to nearby climbing sites as part of a new series of climbing classes. This note bears interest of 6% and matures in 12 months.
Nov.	30	Recorded accrued interest for the Lippert note, the Shanee Bank note, and the vehicle note.
Dec.	1	Paid principal and interest on the Lippert note.
Dec.	31	Recorded accrued interest for the Shanee Bank note and the vehicle note.

Instructions

1.	Prepare journal entries for the transactions noted above.

2.

Post the above entries to the Notes Payable, Interest Payable, and Interest Expense accounts. (Use T-accounts.)

Interest Payable

$590

3.	Show the balance sheet presentation of notes payable and interest payable at December 31.

4. How much interest expense relating to notes payable did Ermlar incur during the year?

P10-4A

Prepare journal entries to record issuance of bonds, interest, balance sheet presentation, and bond redemption.

(LO 5, 6, 7), AP

On October 1, 2013, Koppa Corp. issued $700,000, 5%, 10-year bonds at face value. The bonds were dated October 1, 2013, and pay interest annually on October 1. Financial statements are prepared annually on December 31.

Instructions

1.	Prepare the journal entry to record the issuance of the bonds.

2.	Prepare the adjusting entry to record the accrual of interest on December 31, 2013.

3.	Show the balance sheet presentation of bonds payable and bond interest payable on December 31, 2013.

4.	Prepare the journal entry to record the payment of interest on October 1, 2014.

5.	Prepare the adjusting entry to record the accrual of interest on December 31, 2014.

6.

Assume that on January 1, 2015, Koppa pays the accrued bond interest and calls the bonds. The call price is 104. Record the payment of interest and redemption of the bonds.

Loss

$28,000