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On January 1, the first day of the fiscal year, Shiller Company borrowed $85,000 by giving a seven-year, 7% installment note to Soros Bank. The

On January 1, the first day of the fiscal year, Shiller Company borrowed $85,000 by giving a seven-year, 7% installment note to Soros Bank. The note requires annual payments of $15,772, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $5,950 and principal repayment of $9,822.

Required:

A. Journalize the entries to record the following transactions. Refer to the Chart of Accounts for exact wording of account titles.
1. Issued the installment note for cash on the first day of the fiscal year.
2. Paid the first annual payment on the note.
B. Explain how the notes payable would be reported on the balance sheet at the end of the first year.

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Chart of Accounts

CHART OF ACCOUNTS
Shiller Company
General Ledger
ASSETS
110 Cash
111 Petty Cash
121 Accounts Receivable
122 Allowance for Doubtful Accounts
126 Interest Receivable
127 Notes Receivable
131 Merchandise Inventory
141 Office Supplies
142 Store Supplies
151 Prepaid Insurance
191 Land
192 Store Equipment
193 Accumulated Depreciation-Store Equipment
194 Office Equipment
195 Accumulated Depreciation-Office Equipment
LIABILITIES
210 Accounts Payable
221 Salaries Payable
231 Sales Tax Payable
232 Interest Payable
241 Notes Payable
251 Bonds Payable
252 Discount on Bonds Payable
253 Premium on Bonds Payable
EQUITY
311 Common Stock
312 Paid-In Capital in Excess of Par-Common Stock
315 Treasury Stock
321 Preferred Stock
322 Paid-In Capital in Excess of Par-Preferred Stock
331 Paid-In Capital from Sale of Treasury Stock
340 Retained Earnings
351 Cash Dividends
352 Stock Dividends
390 Income Summary
REVENUE
410 Sales
610 Interest Revenue
611 Gain on Redemption of Bonds
EXPENSES
510 Cost of Merchandise Sold
515 Credit Card Expense
516 Cash Short and Over
521 Sales Salaries Expense
522 Office Salaries Expense
531 Advertising Expense
532 Delivery Expense
533 Repairs Expense
534 Selling Expenses
535 Rent Expense
536 Insurance Expense
537 Office Supplies Expense
538 Store Supplies Expense
541 Bad Debt Expense
561 Depreciation Expense-Store Equipment
562 Depreciation Expense-Office Equipment
590 Miscellaneous Expense
710 Interest Expense
711 Loss on Redemption of Bonds

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Journal

a. Journalize the entries to record the selected transactions. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

5

Solution

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

5

Points:

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Explanation

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Final Question

B. Explain how the notes payable would be reported on the balance sheet at the end of the first year.

Notes payable are reported as liabilities on the balance sheet. The portion of the note payable that is due within selector 1

six months

one year

three months

is reported as a selector 2

current liability

contra liability

long-term liability

. The remaining portion of the note payable that is not due within that period of time is reported as a(n) selector 3

current liability

adjustment to retained earnings

long-term liability

.

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Explanation

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