Question

Required information Problem 11-1A Short-term notes payable transactions and entries LO P1 The following information applies to the questions displayed below Tyrell Co.entered into the following transactions involving short-term liabilities in 2016 and 2017. 2016 p. 20 Purchased $40, 250 of merchandise on credit from Locust, terms n/30. Tyrell uses the perpetual inventory system May 19 Replaced the April 20 account payable to Locust with a 90-day, $35,000 note bearing 10% annual interest along with paying 85, 250 in cash. July 8 Borrowed S80,000 cash from NBR Bank by signing a 120-day, 9% interest-bearing note with a face value of $80,000. Paid the amount due on the note to Locust at the maturity date. ?Paid the amount due on the note to NBR Bank at the maturity date. Nov. 28 Borrowed S42,000 cash from Fargo Bank by signing a 60-day, 8% interest-bearing note with a face value of $42,000. Dec. 31 Recorded an adjusting entry for accrued interest on the note to Fargo Bank. 2017 Paid the amount due on the note to Fargo Bank at the maturity date.

Problem 11-1A Part 1

Required:
1. Determine the maturity date for each of the three notes described.

Problem 11-1A Part 2

2. Determine the interest due at maturity for each of the three notes. (Do not round your intermediate calculations. Use 360 days a year.)

Problem 11-1A Part 3

3. Determine the interest expense to be recorded in the adjusting entry at the end of 2016. (Do not round your intermediate calculations. Use 360 days a year.)

Problem 11-1A Part 4

4. Determine the interest expense to be recorded in 2017. (Do not round intermediate calculations and round your final answers to nearest whole dollar. Use 360 days a year.)

Problem 11-1A Part 5

5.1 Prepare journal entries for all the preceding transactions and events for 2016. (Do not round your intermediate calculations.)

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Answer #1

SOLUTION

1. Calculation of the maturity date for each of the three notes-

L NBR Bank F Bank
Date of note 19 May 8 July 28 November
Term of note (in days) 90 120 60
Maturity date 17 August 5 November 27 January

2. Calculation of interest due-

L NBR Bank F Bank
Principal (a) 35,000 80,000 42,000
Annual interest rate (b) 10% 9% 8%
Term of note (in days) (c) 90 120 60
Interest expense (a*b*c/360) 875 2,400 560

3. The interest expense to be recorded in the adjusting entry at the end of 2016-

Interest to be accrued at the end of 2016 = Principal * Interest rate * Term of note/360 days

= $42,000 * 8%* [(30-28)+31] / 360

= $308

4. The interest expense to be recorded in 2017-

Interest to be recorded in 2017 = Principal * Interest rate * Term of note/360 days

= $42,000 * 8% * (60-33)/360

= $252

5. Journal entries-

Date Accounts titles and Explanation Debit ($) Credit ($)
2016
20 April Merchandise inventory 40,250
Accounts payable - L 40,250
(To record the purchase of inventory on account)
19 May Accounts payable - L 40,250
Cash 5,250
Notes payable - L 35,000
(To record issue of note and amount paid in cash)
8 July Cash 80,000
Notes payable - NBR Bank 80,000
(To record cash borrowed on note)
17 Aug. Notes payable - L 35,000
Interest expense 875
Cash 35,875
(To record cash paid on issue of note)
5 Nov. Notes payable - NBR Bank 80,000
Interest expense 2,400
Cash 82,400
(To record cash paid on issue of note)
28 Nov. Cash 42,000
Notes payable- FB 42,000
(To record cash borrowed on note)
31 Dec. Interest expense 308
Interest payable 308
(To record interest accrued on note)
2017
27 Jan. Notes payable- FB 42,000
Interest payable 308
Interest expense 252
Cash 42,308
(To record cash paid on note)

> Cash to Jan 27, 2017, is actually 42,560, everything else is right though!!!

Kai -A Fri, Nov 26, 2021 11:58 PM

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