Question

Journalizing liability transactions and reporting them on the balance

sheet

The following transactions of Johnson Pharmacies occurred during 2018 and 2019:

2018

Mar. 1 Borrowed \(450,000 from Coconut Creek Bank. The 15-year, 5% note requires

payments due annually, on March 1. Each payment consists of \)30,000 principal

plus one year’s interest.

Dec. 1 Mortgaged the warehouse for \(250,000 cash with Saputo Bank. The mortgage

requires monthly payments of \)8,000. The interest rate on the note is 12% and

accrues monthly. The first payment is due on January 1, 2019.

31 Recorded interest accrued on the Saputo Bank note.

31 Recorded interest accrued on the Coconut Creek Bank note.

2019

Jan. 1 Paid Saputo Bank monthly mortgage payment.

Feb. 1 Paid Saputo Bank monthly mortgage payment.

Mar. 1 Paid Saputo Bank monthly mortgage payment.

1 Paid first installment on note due to Coconut Creek Bank.

Requirements

1. Journalize the transactions in the Johnson Pharmacies general journal. Round to

the nearest dollar. Explanations are not required.

2. Prepare the liabilities section of the balance sheet for Johnson Pharmacies on

March 1, 2019 after all the journal entries are recorded.

Short answer

The cash account is debited with $450,000and the 5% notes payable account is credited with $450,000.

Step-by-step solution

Definition of the interest payable

The interest payable is the amount of the interest due at the end of the year.

Journal entries

Date	Particulars	Debit	Credit
March 1, 2018	Cash	$450,000
	5% Notes Payable		$450,000
	(Being entry for the issue of notes)
December 31, 2018	Cash	$250,000
	12% Notes Payable		$250,000
	(Being entry for the issue of bonds)
December 31, 2018	Interest Expense	$2,500
	Interest Payable		$2,500
	(Being entry for the accrued interest)
December 31, 2018	Interest Expense	$18,750
	Interest Payable		$18,750
	(Being entry for the accrued interest)
January 1, 2019	Mortgage Payable	$5,500
	Interest Payable	$2,500
	Cash		$8,000
	(Being entry for the monthly payment)
February 1, 2019	Mortgage Payable	$5,555
	Interest Payable	$2,445
	Cash		$8,000
	(Being entry for the monthly payment)
March 1, 2019	Mortgage Payable	$5,611
	Interest Payable	$2,389
	Cash		$8,000
	(Being entry for the monthly payment)
March 1, 2019	Interest Payable	$18,750
	Interest Expense	$3,750
	Notes Payable	$30,000
	Cash		$52,500
	(Being entry for the payment of the first instalment)