Survey Of Accounting
5th Edition
ISBN: 9781259631122
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Chapter 7, Problem 32P
Problem 7-32 Accounting for a line of credit
Elite Boat Sales uses a line of credit to help finance its inventory purchases. Elite Boat Sales sells boats
and equipment and uses the line of credit to build inventory for its peak sales months, which tend to be
clustered in the summer months. Account balances at the beginning of 2018 were as follows.
Elite Boat Sales experienced the following transactions for April, May, and June 2018:
- 1. April 1, 2018, obtained approval for a line of credit of up to $700,000. Funds are to be obtained or repaid on the first day of each month. The interest rate is the bank prime rate plus 1 percent.
- 2. April 1, 2018, borrowed $190,000 on the line of credit. The bank’s prime interest rate is 5 percent for April.
- 3. April 15, purchased inventory on account, $210,000.
- 4. April 31, paid other operating expenses of $105,000.
- 5. In April, sold inventory for $420,000 on account. The inventory had cost $250,000.
- 6. April 30, paid the interest due on the line of credit.
- 7. May 1, borrowed $230,000 on the line of credit. The bank’s prime rate is 6 percent for May.
- 8. May 1, paid the accounts payable from transaction 3.
- 9. May 10, collected $380,000 of the sales on account.
- 10. May 20, purchased inventory on account, $230,000.
- 11. May sales on account were $510,000. The inventory had cost $305,000.
- 12. May 31, paid the interest due on the line of credit.
- 13. June 1, repaid $150,000 on the line of credit. The bank’s prime rate is 6 percent for June.
- 14. June 5, paid $280,000 of the accounts payable.
- 15. June 10, collected $630,000 from accounts receivable.
- 16. June 20, purchased inventory on account, $375,000.
- 17. June sales on account were $605,000. The inventory had cost $370,000.
- 18. June 31, paid the interest due on the line of credit.
Required
- a. What is the amount of interest expense for April? May? June?
- b. What amount of cash was paid for interest in April? May? June?
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Students have asked these similar questions
Current Attempt in Progress
Sheffield's Book Warehouse distributes hardcover books to retail stores and extends credit terms of 1/10, n/30 to all of its customers.
At the end of May, Sheffield's inventory consisted of books purchased for $1,700. During June, the following merchandising
transactions occurred.
June 1
3
6
9
15
17
20
24
26
28
30
Purchased books on account for $1,600 from Kline Publishers, FOB destination, terms 1/10, n/30. The appropriate party
also made a cash payment of $60 for the freight on this date.
Sold books on account to Reading Rainbow for $2,600. The cost of the books sold was $1,120.
Received $200 credit for books returned to Kline Publishers.
Paid Kline Publishers in full, less discount
Received payment in full from Reading Rainbow.
Sold books on account to Blanco Books for $2,500. The cost of the books sold was $1,500.
Purchased books on account for $1,400 from Dietz Publishers, FOB destination, terms 1/15, n/30. The appropriate party
also made a cash payment…
Recording Sales and Shipping Terms
Milano Company shipped the following merchandise during the last week of December 2022. All sales were on credit.
Sales Price
Shipping Terms
Date Goods Shipped
Date Goods Received
$5,460
FOB shipping point
December 27
January 3
$3,800
FOB destination
December 29
January 5
$4,250
FOB destination
December 29
December 31
Required:
1. Compute the total amount of sales revenue recognized by Milano from these transactions.
2. If Milano included all of the above shipments as revenue, what would be the effect on the financial statements? Enter all amounts as positive numbers.
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Current Attempt in Progress
Your accounts receivable clerk, Helen Adams, to whom you pay a salary of $1,540 per month, has just purchased a new Acura. You
decide to test the accuracy of the accounts receivable balance of $85,700 as shown in the ledger.
The following information is available for your first year in business.
Collections from customers
Merchandise purchased
(1)
(2)
(3)
Ending merchandise inventory
(4) Goods are marked to sell at 40% above cost
$196,400
321,300
98,550
Compute an estimate of the ending balance of accounts receivable from customers that should appear in the ledger and any apparent
shortages. Assume that all sales are made on account.
The ending balance of accounts receivable from customers $
Apparent shortage
Chapter 7 Solutions
Survey Of Accounting
Ch. 7 - 1. What type of transaction is a cash payment to...Ch. 7 - Prob. 2QCh. 7 - How does recording accrued interest affect the...Ch. 7 - 4. Who is the maker of a note payable?Ch. 7 - How does the going concern assumption discussed in...Ch. 7 - 6. Why is it necessary to make an adjusting entry...Ch. 7 - Assume that on October 1, 2018, Big Company...Ch. 7 - Prob. 8QCh. 7 - Prob. 9QCh. 7 - Prob. 10Q
Ch. 7 - 11. Are contingent liabilities recorded on a...Ch. 7 - Prob. 12QCh. 7 - Prob. 13QCh. 7 - Prob. 14QCh. 7 - Prob. 15QCh. 7 - Prob. 16QCh. 7 - 1. What is the difference between classification...Ch. 7 - 2. At the beginning of Year 1, B Co. has a note...Ch. 7 - 3. What is the purpose of a line of credit for a...Ch. 7 - 4. What are the primary sources of debt financing...Ch. 7 - 5. What are some advantages of issuing bonds...Ch. 7 - 6. What are some disadvantages of issuing bonds?Ch. 7 - 7. Why can a company usually issue bonds at a...Ch. 7 - 15. If Roc Co. issued 100,000 of 5 percent,...Ch. 7 - 16. What is the mechanism is used to adjust the...Ch. 7 - 17. When the effective interest rate is higher...Ch. 7 - 18. What type of transaction is the issuance of...Ch. 7 - 19. What factors may cause the effective interest...Ch. 7 - 20. If a bond is selling at 97, how much cash will...Ch. 7 - Prob. 30QCh. 7 - 22. Gay Co. has a balance m the Bonds Payable...Ch. 7 - Prob. 32QCh. 7 - Prob. 33QCh. 7 - Recognizing accrued interest expense Abardeen...Ch. 7 - Prob. 2ECh. 7 - Prob. 3ECh. 7 - Prob. 4ECh. 7 - Prob. 5ECh. 7 - Effect of warranties on income and cash flow To...Ch. 7 - Effect of warranty obligations and payments on...Ch. 7 - Principle due at maturity versus installments...Ch. 7 - Prob. 9ECh. 7 - Amortization of a long-term loan A partial...Ch. 7 - Prob. 11ECh. 7 - Prob. 12ECh. 7 - Prob. 13ECh. 7 - Prob. 14ECh. 7 - Exercise 7-15 Straight-line amortization of a bond...Ch. 7 - Prob. 16ECh. 7 - Prob. 17ECh. 7 - Prob. 18ECh. 7 - Prob. 19ECh. 7 - Prob. 20ECh. 7 - Prob. 21ECh. 7 - Exercise 7-22 Preparing a classified balance sheet...Ch. 7 - Exercise 7-23 Effective interest amortization of a...Ch. 7 - Prob. 24ECh. 7 - Prob. 25ECh. 7 - Prob. 26PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Problem 7-29 Current liabilities The following...Ch. 7 - Prob. 30PCh. 7 - Prob. 31PCh. 7 - Problem 7-32 Accounting for a line of credit Elite...Ch. 7 - Prob. 33PCh. 7 - Prob. 34PCh. 7 - Problem 7-35 Straight-line amortization of a bond...Ch. 7 - Prob. 36PCh. 7 - Prob. 37PCh. 7 - Prob. 38PCh. 7 - Writing Assignment Definition of elements of...Ch. 7 - Prob. 5ATC
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