Question

Problem 11-2A Transaction with short-term notes payable The High level company entered into the following transactions involving short-term liabilities during 2014-2015.

    2014

Mar. 14   Purchased merchandise on credit from Ferris Inc. for $130,000. The terms were 1/10, n/30

             (assume a perpetual inventory system.)

Apr. 14 High level paid $20,000 cash and replaced the $110,000 remaining balance of the account payable to Ferris Inc. with a     4%, 60-day note payable.

May 21 Borrowed $120,000 from Scotia Bank by signing a 3.5%, 90-day note.

         ? Paid the note to Ferris Inc. at maturity.

        ? Paid the note to Scotia Bank at maturity.

Dec.15 Borrowed $95,000 and sign a 4.25%, 120-day note with National Bank.

Dec.31 Recorded an adjusting entry for the accrual of interest on the note National Bank.

2015

? Paid the note to National Bank at maturity.

REQUIRED:

1. Determine the maturity dates of the three notes just described.

2. Present Journal entries for each of the preceding dates.

Answer 1

1)

		Maturity dates
Note 1-Ferris Inc	April 14+ 60 days	13 June 2014
Note 2-Scotia Bank	May 21 +90 days	19 August 2014
Note 3 - National Bank	Dec 15+ 120 days	14 April 2015

2)

Date	Account title	Debit	credit
2014
March 14	Merchandise inventory	130000
	Accounts payable		130000
April 14	Accounts payable	130000
	cash		20000
	Note payable (Note 1)		110000
May 21	cash	120000
	Note payable (Note 2)		120000
June 13	Note payable (Note 1)	110000
	Interest expense (110000*.04*60/360)	733
	cash		110733
19August	Note payable (Note 2)	1050
	Interest expense (120000*.035*90/360)		1050
Dec 15	cash	95000
	Note payable (Note 3)		95000
December 31	Interest expense	179
	Interest payable (95000*.0425*16/360)		179
2015
April 14 2015	Note payable (Note 3)	95000
	Interest expense (95000*.0425*104/360)	1166
	Interest payable	179
	cash		96345