Notes Payable and Interest

On July 1, 2016, Kamer's Trinkets borrowed $30,000 from the bank. Kamer signed a ten-month, 8% promissory note for the entire amount. Kamer's uses a calendar year-end.

Required:

1.Prepare the journal entry on July 1 to record the issuance of the promissory note. Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Date

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

2016

July 1

2. Prepare any adjusting entries needed at year-end. Use months in calculation. Do not round intermediate calculations. Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Date

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

2016

Dec. 31

3. Prepare the journal entry on May 1 to record the payment of principal and interest. Use months in calculation. Do not round intermediate calculations. If required, round your final answer to the nearest dollar. Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Date

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

2017

May 1

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Warranties

Polar Company manufactures and sells Ice Machines. Polar provides all customers with a two-year warranty guaranteeing to repair, free of charge, any defects reported during this time period. During the year, it sold 100,000 Ice Machines for $280 each. Analysis of past warranty records indicates that 12% of all sales will be returned for repair within the warranty period. Polar expects to incur expenditures of $17 to repair each Ice Machine. The account Estimated Liability for Warranties had a balance of $120,000 on January 1. Polar incurred $115,000 in actual expenditures during the year.

Required:

Prepare all journal entries necessary to record the events related to the warranty transactions during the year.

During the year, it sold 100,000 Ice Machines for $280 each.

How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Analysis of past warranty records indicates that 12% of all sales will be returned for repair within the warranty period. Polar expects to incur expenditures of $17 to repair each Ice Machine. The account Estimated Liability for Warranties had a balance of $120,000 on January 1. How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Polar incurred $115,000 in actual expenditures during the year. How does this entry affect the accounting equation? Indicate the effect on financial statement items by selecting "" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal

Balance Sheet

Income Statement

Stockholders

Net

Description

Debit

Credit

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Determine the adjusted ending balance in the Estimated Liability for Warranties account.

$