Question

Paragraph Part 1: Interest and Inventory Costs Instructions: Calculate the following HNL finance scenarios. 1. On January 3, 2016. HNL negotiated a short-term loan of $685,000. The loan was due October 1 2016, and carried a 6.86% interest rate. a What is the total amount HNL paid on the maturity date? Use ordinary interest to calculate the interest. Show your work in the space provided. b. In a few complete sentences, explain how you calculated the answer. 2. On January 1, HNL had an inventory costing $95.000. During January, HNL had net purchases of 5118,900. Over recent years. HNL's gross profit in January has averaged 45% on sales. The company's net sales in January were $210,800. a. What is the estimated cost of ending inventory using the gross profit method? Show your work in the space provided. b. In a few complete sentences, explain how you calculated the answer

Answer 1

Answer 1(a):

Date of borrowing = January 6, 2016

Maturity date = October 1, 2016.

Duration of short term loan = Maturity date - Date of borrowing = 272 days.

Interest on short term loan = 685000 * 6.86% * 272/365 = $35017.95

Total amount HNL paid on maturity = Principal + Maturity = 685000 + 35017.95 = $720,017.95

Total amount HNL paid on maturity = $720,017.95

Answer 1(b):

Calculate the number of days the short term loan is outstanding. Calculate interest payable based on interest rate agreed, principal amount and number of days the loan is outstanding. Calculate total amount payable by adding interest payable to loan amount.

Answer 2(a):

Given:

Beginning inventory = $95,000

Net Purchases = $118,900

Net sales = $210,800

Gross profit = 45% of net sales

Hence:

Estimated Cost of goods sold = Net sales - Gross profit = 210800 - 210800 * 45% = $115,940

Cost of goods available for sales = Beginning inventory + Net purchases = 95000 + 118900 = $213,900

Estimated Ending inventory = Cost of Goods available for sale - Cost of goods sold

= 213900 - 115940

= $97,960

Estimated Ending inventory = $97,960

Answer 2(b):

Calculate cost of goods available for sale by adding beginning inventory and net purchases. We need cost of goods sold to estimate ending inventory. Calculate cost of goods sold by calculating and deducting gross profit from net sales. Calculate estimated ending inventory by subtracting cost of goods sold from cost of goods available for sale.