Blanton Plastics, a household plastic product manufacturer, borrowed $14 million cash on October 1, 2018, toprovide working capital for year-end production. Blanton issued a four-month, 12% promissory note to L&TBank under a prearranged short-term line of credit. Interest on the note was payable at maturity. Each firm’sfiscal period is the calendar year.Required:1. Prepare the journal entries to record (a) the issuance of the note by Blanton Plastics and (b) L&T Bank’sreceivable on October 1, 2018.2. Prepare the journal entries by both firms to record all subsequent events related to the note through January31, 2019.3. Suppose the face amount of the note was adjusted to include interest (a noninterest-bearing note) and 12% isthe bank’s stated discount rate. (a) Prepare the journal entries to record the issuance of the noninterestbearing note by Blanton Plastics on October 1, 2018, the adjusting entry at December 31, and payment of thenote at maturity. (b) What would be the effective interest rate?
Blanton Plastics, a household plastic product manufacturer, borrowed $14 million cash on October 1, 2018, to
provide
Bank under a prearranged short-term line of credit. Interest on the note was payable at maturity. Each firm’s
fiscal period is the calendar year.
Required:
1. Prepare the
receivable on October 1, 2018.
2. Prepare the journal entries by both firms to record all subsequent events related to the note through January
31, 2019.
3. Suppose the face amount of the note was adjusted to include interest (a noninterest-bearing note) and 12% is
the bank’s stated discount rate. (a) Prepare the journal entries to record the issuance of the noninterestbearing note by Blanton Plastics on October 1, 2018, the
note at maturity. (b) What would be the effective interest rate?
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