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  • Audit Liability 13 Chapter 7

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    Ma Teresa B. Cerezo
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    Tunis Company purchased a truck for $400,000 by paying $40,000 cash and signing a 1-year, 12% note for the balance. It also borrowed $800,000 from a bank by signing a 1-year, non-interest bearing note for $920,000. To fairly present the financial statements, adjusting journal entries are needed to record interest expense and payable of $32,400 on the truck note and interest expense and discount on notes payable of $80,000 for the bank loan.

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    Tunis Company purchased a truck for $400,000 by paying $40,000 cash and signing a 1-year, 12% note for the balance. It also borrowed $800,000 from a bank by signing a 1-year, non-interest bearing note for $920,000. To fairly present the financial statements, adjusting journal entries are needed to record interest expense and payable of $32,400 on the truck note and interest expense and discount on notes payable of $80,000 for the bank loan.

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    235 views2 pages

    Audit Liability 13 Chapter 7

    Uploaded by

    Ma Teresa B. Cerezo
    Tunis Company purchased a truck for $400,000 by paying $40,000 cash and signing a 1-year, 12% note for the balance. It also borrowed $800,000 from a bank by signing a 1-year, non-interest bearing note for $920,000. To fairly present the financial statements, adjusting journal entries are needed to record interest expense and payable of $32,400 on the truck note and interest expense and discount on notes payable of $80,000 for the bank loan.

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    © All Rights Reserved
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    of 2

    PROBLEM 7-13

    Notes Payable: Adjustments for Interest


    Described below are certain transactions of TUNIS COMPANY.
    1. On April 1, the corporation bought a truck for P400,000 from
    General Motors Company, paying P40,000 in cash and signing a
    oneyear,
    12% note for the balance of the purchase price.
    2. On April 1, the corporation borrowed P800,000 from the Prudent
    Bank by signing a P920,000 noninterest-bearing note due one-year
    from May 1.
    Prepare any adjusting journal entries to present a fair financial
    statements at December 31.
    SOLUTION 7-13
    ADJUSTING JOURNAL ENTRIES
    December 31
    1. Interest expense 32,400
    Interest payable 32,400
    (P360,000 x 12 9/12)
    2. Interest expense 80,000
    Discount on notes payable 80,000
    (P120,000 x 8/12)

    PROBLEM 7-13
    Notes Payable: Adjustments for Interest
    Described below are certain transactions of TUNIS COMPANY.
    1. On April 1, the corporation bought a truck for P400,000 from
    General Motors Company, paying P40,000 in cash and signing a
    oneyear,
    12% note for the balance of the purchase price.
    2. On April 1, the corporation borrowed P800,000 from the Prudent
    Bank by signing a P920,000 noninterest-bearing note due one-year
    from May 1.
    Prepare any adjusting journal entries to present a fair financial
    statements at December 31.
    SOLUTION 7-13
    ADJUSTING JOURNAL ENTRIES
    December 31
    1. Interest expense 32,400
    Interest payable 32,400
    (P360,000 x 12 9/12)
    2. Interest expense 80,000
    Discount on notes payable 80,000
    (P120,000 x 8/12)
    PROBLEM 7-13
    Notes Payable: Adjustments for Interest
    Described below are certain transactions of TUNIS COMPANY.
    1. On April 1, the corporation bought a truck for P400,000 from
    General Motors Company, paying P40,000 in cash and signing a
    oneyear,
    12% note for the balance of the purchase price.
    2. On April 1, the corporation borrowed P800,000 from the Prudent
    Bank by signing a P920,000 noninterest-bearing note due one-year
    from May 1.
    Prepare any adjusting journal entries to present a fair financial
    statements at December 31.
    SOLUTION 7-13
    ADJUSTING JOURNAL ENTRIES
    December 31
    1. Interest expense 32,400
    Interest payable 32,400
    (P360,000 x 12 9/12)
    2. Interest expense 80,000
    Discount on notes payable 80,000
    (P120,000 x 8/12)

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