FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
During the fiscal year ended December 31, Swanson Corporation engaged in the following transac-
tions involving notes payable:
Aug. 6 Borrowed $12,000 from Maple Grove Bank, signing a 45-day, 12 percent note payable.
Sept. 16 Purchased office equipment from Seawald Equipment. The invoice amount was
$18,000, and Seawald agreed to accept, as full payment, a 10 percent, three-month
note for the invoice amount.
Sept. 20 Paid Maple Grove Bank the note plus accrued interest.
Nov. 1 Borrowed $250,000 from Mike Swanson, a major corporate stockholder. The corpora-
tion issued Swanson a $250,000, 15 percent, 90-day note payable.
Dec. 1 Purchased merchandise inventory in the amount of $5,000 from Gathman Corporation.
Gathman accepted a 90-day, 14 percent note as full settlement of the purchase.
Swanson Corporation uses a perpetual inventory system.
Dec. 16 The $18,000 note payable to Seawald Equipment matured today. Swanson paid the
accrued interest on this note and issued a new 30-day, 16 percent note payable in the
amount of $18,000 to replace the note that matured.
Instructions
a. Prepare
360-day year in making the interest calculations.
b. Prepare the
entry for all three notes (round to the nearest dollar).
c. Provide a possible explanation why the new 30-day note payable to Seawald Equipment pays
16 percent interest instead of the 10 percent rate charged on the September 16 note.
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