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).