The following are selected 2011 transactions of Darby Corporation. Sept. 1 Purchased inventory from Orion Company on

Question:

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.

Instructions

(a) Prepare journal entries for each transaction.

(b) Prepare adjusting entries at December 31, 2011.

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?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...