Up owns 80% of Down. During 2009 Down began selling merchandise to Up at gross profit margin of 20%. Sales by Down to Up for the year totaled $80,000, of which $10,000 remain unsold. In 2010 Down sold $100,000 merchandise to Up at gross margin of 40%. Up’s Ending inventory balance at the end of 2010 is $25,000. Prepare the journal entries for 2009 and 2010 to eliminate and adjust for the intercompany transaction.

Answer 1

Hanna Company borrows $80,000 on July 1 from the bank by signing a $80,000, 10%, one-year note payable.



Correct.

Prepare the journal entry to record the proceeds of the note.
Date Account/Description Debit Credit
July 1




Incorrect.

Prepare the journal entry to record accrued interest at December 31, assuming adjusting entries are made only at the end of the year.
Date Account/Description Debit Credit
Dec. 31