Cling On LTD Sells Rock Climbing Products and Also Operates An Indoor

Cling-on Ltd. sells rock climbing products and operates an indoor climbing facility. In September 2012, it had a $12,000 bank loan. During the next four months, it purchased inventory, repaid the bank loan, issued a note payable to the inventory supplier, took out additional bank loans to finance building improvements and a vehicle, and accrued interest on the loans. At year-end December 31, interest expense and loan balances are presented in the financial statements.

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Cling On LTD Sells Rock Climbing Products and Also Operates An Indoor

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Miroslav Gegoski

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Cling on Ltd sells rock climbing products and also

operates an indoor #8635

Cling on Ltd sells rock climbing products and also operates an indoor

Cling-on Ltd. sells rock-climbing products and also operates an indoor climbing facility for
climbing enthusiasts. On September 1, 2012, the company had a balance of $12,000 in its Bank
Loan Payable account, representing a loan borrowed from the local credit union on July 1. The
loan and 6% interest are both payable at maturity, on September 30. Note that the company
records adjusting entries only annually at its year end, December 31.

During the next four months, Cling-on incurred the following:

Sept. 1 Purchased inventory on account for $15,000 from Black Diamond, terms n/30. The
company uses a perpetual inventory system.

30 Repaid the $12,000 bank loan payable to the credit union (see opening balance), as well as
any interest owed.

Oct. 1 Issued a six-month, 7%, $15,000 note payable to Black Diamond in exchange for the
account payable (see Sept. 1 transaction). Interest is payable on the first of each month.

2 Borrowed $25,000 from Montpelier Bank for 12 months at 8% to finance the building of a new
climbing area for advanced climbers (use the asset account Climbing Wall). Interest is payable
monthly on the first of each month.

Nov. 1 Paid interest on the Black Diamond note and Montpelier Bank loan.

Dec. 1 Paid interest on the Black Diamond note and Montpelier Bank loan.

2 Purchased a vehicle for $28,000 from Auto Dealer Ltd. to transport clients to nearby climbing
sites. Paid $8,000 as a down payment and borrowed the remainder from the Montpelier Bank
for 12 months at 7%. Interest is payable quarterly, at the end of each quarter.

31 Recorded accrued interest for the Black Diamond note and Montpelier Bank loans.

Instructions

(a) Record the above transactions.

(b) Open T accounts for the Interest Expense, Interest Payable, Bank Loans Payable, and
Notes Payable accounts. Post the above entries.

(c) Assuming there is no other interest expense than that recorded in the transactions above,
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show the income statement presentation of interest expense for the year ended December 31.

(d) Show the statement of financial position presentation of the bank loans, notes, and interest
payable at December 31.

Cling on Ltd sells rock climbing products and also operates an indoor

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