Current Liabilities and Payroll
LO 1a – Recording
Notes Payable
@ 2012, Cengage Learning
LO 1
Current Liabilities
Long-term liabilities are debts due beyond one
year.
Current liabilities are debts that will be paid
out of current assets and are due within one
year.
LO 1
Short-Term Notes Payable
Nature’s Sunshine Company issues a 90-day, 12%
note for $1,000, dated August 1, 2011, to Murray Co.
for a $1,000 overdue account.
LO 1
Short-Term Notes Payable
When the note matures, the entry to record the
payment of $1,000 plus $30 interest ($1,000 * 12% *
90 / 360) is as follows:
Interest Expense appears
on the income statement
as an “Other Expense.”
LO 1
Short-Term Notes Payable
On May 1, Bowden Co. (borrower) purchased
merchandise on account from Coker Co.
(creditor), $10,000, 2/10, n/30. The
merchandise cost Coker Co. $7,500.
LO 1
Short-Term Notes Payable
Bowden Co. (Borrower)
Description
Debit Credit
Mdse. Inventory
10,000
Accounts Payable
10,000
Coker Co. (Creditor)
Description
Debit Credit
Accounts Receivable 10,000
Sales
10,000
Cost of Mdse. Sold
Mdse. Inventory
7,500
7,500
LO 1
Short-Term Notes Payable
On May 31, Bowden Co. issued a 60-day, 12%
note for $10,000 to Coker Co. on account.
LO 1
Short-Term Notes Payable
Bowden Co. (Borrower)
Description
Accounts Payable
Notes Payable
Debit
Credit
10,000
10,000
Coker Co. (Creditor)
Description
Debit Credit
Notes Receivable
10,000
Accounts Receivable
10,000
LO 1
Short-Term Notes Payable
On July 30, Bowden Co. paid Coker Co. the
amount due on the note of May 31, the face
amount of $10,000 plus interest of $200
($10,000 * 12% * 60 / 360).
LO 1
Short-Term Notes Payable
Bowden Co. (Borrower)
Description
Debit
Notes Payable
Interest Expense
Cash
10,000
200
Credit
10,200
Coker Co. (Creditor)
Description
Cash
Interest Revenue
Notes Receivable
Debit
Credit
10,200
200
10,000
LO 1
Short-Term Notes Payable
Bowden Co. (Borrower)
Description
Debit
Notes Payable
Interest Expense
Cash
10,000
200
Credit
10,200
$10,000 * 12% * 60 /
Coker
360
Description
Co. (Creditor)
Cash
Interest Revenue
Notes Receivable
Debit
Credit
10,200
200
10,000
LO 1
Short-Term Notes Payable
Bowden Co. (Borrower)
Description
Debit
Notes Payable
Interest Expense
Cash
10,000
200
Credit
10,200
Coker Co. (Creditor)
Description
$10,000 * 12%
* 60 / 360
Cash
Interest Revenue
Notes Receivable
Debit
Credit
10,200
200
10,000
LO 1
Short-Term Notes Payable
On September 19, Iceburg Company borrowed cash
from First National Bank by issuing a $4,000, 90-day,
15% note to the bank.
LO 1
Short-Term Notes Payable
On December 18, Iceburg Company paid First
National Bank $4,000 plus interest of $150 ($4,000 *
15% * 90 / 360).