Q:2

Described below are certain transactions of Larson Company for 2015:

1.On May 10, the company purchased goods from Fry Company for $50,000, terms 2/10, n/30. Purchases and accounts payable are recorded at net amounts. The invoice was paid on May 18.

2.On June 1, the company purchased equipment for $60,000 from Raney Company, paying $20,000 in cash and giving a one-year, 9% note for the balance.

3.On September 30, the company borrowed $108,000, by signing a one-year zero-interest-bearing $120,000 note at First State Bank.

Instructions

(a)Prepare the journal entries necessary to record the transactions above using appropriate dates.

(b)Prepare the adjusting entries necessary at December 31, 2015 in order to properly report interest expense related to the above transactions. Assume straight-line amortization.

(c)Indicate the manner in which the above transactions should be reflected in the Current Liabilities section of Larson Company's December 31, 2015 statement of financial position.