Question

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LU Notes Problems Problem 2 The Controller of The Fur Seasons, a dog kennel and spa, prepares a entries only at the end of the fiscal year. The following adjusting er prepared on December 31, 2016: 6,300 6,300 35,000 Dec 31 Interest expense Interest payable Dec 31 Rent expense Prepaid rent Dec 31 Interest receivable Interest revenue 35,000 1,050 1,050 Additional information: le company borrowed $120,000 on March 31, 2016. Principal and interest are due on March 31, 2017. Rent for the year on the company's office space is $60,000. The rent is paid in advance. 3. On October 31, 2016, The Fur Seasons lent money to a customer. The customer signed a note with principal and interest at 7% due in one year. Required: Determine the following: 1. What is the interest rate on the company's note payable? 2. The 2016 rent payment was made at the beginning of which month? 3. How much did The Fur Seasons lend to its customer on October 31?

Answer 1

Answer with working and explanation is given below

1 Interest rate is 7% per annum basis Interest expense of $6,300 is for 9 months from April to December 2016 so full year interest will be $8,400 ($6,300/9 months * 12 months) Interest rate will be Full year Interest Borrowings $8,400 $120,000 7.00% 2 Rent payment was done at beginning of August month Rent for full year is $60,000 So rent per month is $5,000 ( $60,000/12 months) Prepaid rent is $35,000 which is for 7 months ($35,000/$5,000) so in 2018 rent is paid for 5 months starting from August to December Fur Seasons lent $90,000 to its Customer On October 31, 2016 Interest of 7% for 2 months is $1,050 so interest for full year is $6,300 $1,050/2 months *12 months) Interest of $6,300 at 7% on Principal of $90,000 $6,300/7%)