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Liability Transactions The following items were selected from among the transactions completed by Emerald Bay Stores Co. during the current year: Feb. 15. Purchased merchandise

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Liability Transactions The following items were selected from among the transactions completed by Emerald Bay Stores Co. during the current year: Feb. 15. Purchased merchandise on account from Hood Co., $144,000, terms n/30. Mar. 17. Issued a 60-day, 8% note for $144,000 to Hood Co., on account. May 16. Paid Hood Co. the amount owed on the note of March 17. June 15. Borrowed $159,600 from Acme Bank, issuing a 60-day, 9% note. July 21. Purchased tools by issuing a $90,000, 90-day note to Columbia Supply Co., which discounted the note at the rate of 8%. Aug. 14. Paid Acme Bank the interest due on the note of June 15 and renewed the loan by issuing a new 60-day, 10% note for $159,600. (Journalize both the debit and credit to the notes payable account.) Oct. 13. Paid Acme Bank the amount due on the note of August 14. Oct. 19. Paid Columbia Supply Co. the amount due on the note of July 21. Dec. 1. Purchased office equipment from Mountain Equipment Co. for $144,000, paying $24,000 and issuing a series of ten 6% notes for $12,000 each, coming due at 30-day intervals. Dec. 12. Settled a product liability lawsuit with a customer for $75,000, payable in January. Emerald Bay accrued the loss in a litigation claims payable account. Dec. 31. Paid the amount due Mountain Equipment Co. on the first note in the series issued on December 1. Required: 1. Journalize the transactions. If an amount box does not require an entry, leave it blank. Assume a 360-day year. For a compound transaction, accounts should be listed largest to smallest. Date Account Debit Credit Feb. 15 Inventory 144,000 Accounts Payable - Hood Co. 144,000 Mar. 17 Accounts Payable - Hood Co. 144,000 Notes Payable 144,000 May 16 Notes Payable 144,000 Interest Expense 1,920 Cash 145,920 June 15 Cash 157,200 x Notes Payable 157,200 x July 21 Tools 85,695 x Interest Expense 1,305 Notes Payable 87,000 x Aug. 14 Notes Payable 148,800 x Interest Expense 1,984 x Notes Payable Cash 1,984 x Oct. 13 Notes Payable Interest Expense Cash Oct. 19 Notes Payable 75,000 Cash 75,000 Dec. 1 Office Equipment 108,000 X Notes Payable 90,000 x Cash 18,000 x Dec. 12 Litigation Loss 61,000 X Litigation Claims Payable 61,000 Dec. 31 Notes Payable 9,000 X Interest Expense 45 Cash 9,045 X 2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $16,300; (b) interest on the nine remaining notes owed to Mountain Equipment Co. Item Account Debit Credit a. Product Warranty Expense 18,000 x Product Warranty Payable 18,000 X b. Interest Expense 405 Interest Payable 405 Interest Expense 45 Cash 9,045 x 2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $16,300; (b) interest on the nine remaining notes owed to Mountain Equipment Co. Item Account Debit Credit a. Product Warranty Expense 18,000 x Product Warranty Payable 18,000 x b. Interest Expense 405 Interest Payable 405 X Feedback Check My Work Consider why the note is being issued (for cash, merchandise, other long-term assets). Consider what type of note is being issued (discount or interest-bearing). Consider the definition of proceeds. When making a payment on a note what accounts would be affected? What accounts would have to decrease? Product warranty adjustments are recorded in the same period in which the related sales are recorded. Remember that the interest on the nine remaining notes is an accrued expense adjusting entry, which means that at least one balance sheet account and one income statement account is affected. Learning Objective 1, Learning Objective 5

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