The following are selected 2014 transactions of Darby Corporation.

Sept. 1 Purchased inventory from Orion Company on account for $50,000. Darby uses a periodic inventory system and records purchases using the gross method of accounting for purchase discounts.

Oct. 1 Issued a $50,000, 12-month, 8% note to Orion in payment of Darby's account.

1 Borrowed $75,000 from the bank by signing a 12-month, non-interest-bearing $81,000 note.

Instructions

(a) Prepare journal entries for each transaction.

(b) Prepare adjusting entries at December 31, 2014.

(c) Calculate the net liability, in total, to be reported on the December 31, 2014 statement of financial position for

(1) The interest-bearing note, and

(2) The non-interest-bearing note.

(d) Prepare the journal entries for the payment of the notes at maturity.

(e) Repeat part (d) assuming the company uses reversing entries. (Show the reversing entries at January 1, 2015.) Would the use of reversing entries be efficient for both types of notes?