Question

Glencoe Inc. operates with a June 30 year-end. During 2017, the following transactions occurred:

1. January 1: Signed a one-year, 10% loan for $25,000. Interest and principal are to be paid at maturity.
2. January 10: Signed a line of credit with Little Local Bank to establish a $400,000 line of credit. Interest of 9% will be charged on all borrowed funds.
3. February 1: Issued a $20,000 non-interest-bearing, six-month note to pay for a new machine. Interest on the note, at 12%, was deducted in advance.
4. March 1: Borrowed $150,000 on the line of credit.
5. June 1: Repaid $100,000 on the line of credit plus accrued interest.
6. June 30: Made all necessary adjusting entries.
7. August 1: Repaid the non-interest-bearing note.
8. September 1: Borrowed $200,000 on the line of credit.
9. November 1: Issued a three-month, 8%, $12,000 note in payment of an overdue open account.
10. December 31: Repaid the one-year loan [from transaction (a)] plus accrued interest.

Required:

1. Identify and analyze the effect of these transactions. Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

a. January 1: Signed a one-year, 10% loan for $25,000. Interest and principal are to be paid at maturity.

b. January 10: Signed a line of credit with Little Local Bank to establish a $400,000 line of credit. Interest of 9% will be charged on all borrowed funds.

c. February 1: Issued a $20,000 non-interest-bearing, six-month note to pay for a new machine. Interest on the note, at 12%, was deducted in advance

d. March 1: Borrowed $150,000 on the line of credit

e. June 1: Repaid $100,000 on the line of credit plus accrued interest.

f. June 30: Made all necessary adjusting entries

The adjustment to amortize the discount on the note:

g. August 1: Repaid the non-interest-bearing note.

h. September 1: Borrowed $200,000 on the line of credit.

i. November 1: Issued a three-month, 8%, $12,000 note in payment of an overdue open account.

j. December 31: Repaid the one-year loan [from transaction (a)] plus accrued interest.

2. As of December 31, which notes are outstanding? How much interest is due on each? Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

Outstanding Debt	Principal Balance	Interest Payable
Line of credit	$	$
8% Note	$	$

Answer 1

1. In the books of Glencoe Inc. :

Transaction/ Event	Date	Account Titles	Debit	Credit
			$	$
a.	January 1	Cash	25,000
		Notes Payable		25,000
b.	January 10	No journal entry required
c.	February 1	Equipment	18,800
		Discount on Notes Payable	1,200
		Notes Payable		20,000
d.	March 1	Cash	150,000
		Line of Credit Payable		150,000
e.	June 1	Line of Credit Payable	100,000
		Interest Expense	2,250
		Cash		102,250
f.	June 30	Interest Expense	3,750
		Interest Payable		2,750
		Discount on Notes Payable ( $ 1,200 x 5 / 6)		1,000
g.	August 1	Notes Payable	20,000
		Interest Expense	200
		Cash		20,000
		Discount on Notes Payable		200
h.	September 1	Cash	200,000
		Line of Credit Payable		200,000
i.	November 1	Cash	12,000
		Notes Payable		12,000
j.	December 31	Notes Payable	25,000
		Interest Payable	1,250
		Interest Expense	1,250
		Cash		27,500

2.

Outstanding Debt	Principal Balance	Interest Payable
Line of Credit	$ 250,000	$ 9,750
8 % Note	$ 12,000	$ 160