INTERMEDIATE ACCOUNTING 2 of 3
MIDTERM EXAM

Pick 7 problems that you will do. Each problem is worth 14 points. Please put your answer in the space provided, any back up can be attached at the end of the exam as long as it is clearly labeled . Your work can be done by hand as long as it is legible.

Select the 7 problems you are completing: 1, 4, 5, 9, 10, 11, 12

Problem 1—Accounts and Notes Payable.
Described below are certain transactions of Larson Company for 2010:
1. On May 10, the company purchased goods from Fry Company for $60,000, 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 $90,000 from Raney Company, paying $25,000 in cash and giving a one-year, 10% note for the balance.
3. On September 30, the company discounted at 10% its $150,000, one-year zero-interest-bearing note at First State Bank.

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

Date | Account Name | Debit | Credit | 05-10 | Purchases | 49,000 | | | Accounts Payable | | 49,000 | | To record purchased goods at net amounts. | | | 05-18 | Accounts Payable | 49,000 | | | Cash | | 49,000 | | To record payment of invoice. | | | 06-01 | Equipment | 90,000 | | | Cash | | 25,000 | | Note Payable | | 65,000 | | To record purchase of equipment. | | | 09-30 | Cash | 135,000 | | | Discount on Note Payable | 15,000 | | | Note Payable | | 150,000 | | To record discount on note. | | |

(b) Prepare the adjusting entries necessary at December 31, 2010 in order to properly report interest expense related to the above transactions. Assume straight-line amortization of discounts.

Date | Account Name | Debit | Credit |