Financial Accounting Fundamentals
Financial Accounting Fundamentals
6th Edition
ISBN: 9781259726910
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
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Chapter 9, Problem 1BP

1.

To determine

Identify the maturity date for each of the three notes described.

1.

Expert Solution
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Explanation of Solution

Notes payable:

Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs.

Maturity date:

The date on which the borrower should pay the principal amount of loan, or bond, is referred to as maturity date.

ParticularsCompany FBank SBank C
Date of  note23rd   May15th July6th December
Terms of the note ( in days)6012045
Maturity date22nd  July12th November20th   January

(Table 1)

2.

To determine

Identify the interest due at maturity for each of the three notes.

2.

Expert Solution
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Explanation of Solution

Calculate the interest due at maturity for the note bearing an amount of $4,600.

Interest due at maturity for the note bearing $4,600 }(Principal amount× Annual interest rate × Time period)=$4,600×15%×60360=$115

Therefore, the interest due at maturity for the note bearing an amount of $4,600 is $115.

Calculate the interest due at maturity for the note bearing an amount of $12,000.

Interest due at maturity for the note bearing $12,000 }(Principal amount× Annual interest rate × Time period)=$12,000×10%×120360=$400

Therefore, the interest due at maturity for the note bearing an amount of $12,000 is $400.

Calculate the interest due at maturity for the note bearing an amount of $8,000.

Interest due at maturity for the note bearing $8,000 }(Principal amount× Annual interest rate × Time period)=$8,000×9%×45360=$90

Therefore, the interest due at maturity for the note bearing an amount of $8,000 is $90.

3.

To determine

Identify the interest expense to be recorded in the adjusting entry at the end of 2016.

3.

Expert Solution
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Explanation of Solution

Accrued interest on Bank C note at the end of 2016}=(Total interest on note × Time period for the term 2016)=$90×2545=$50

Therefore, the interest expense recorded in the adjusting entry at the end of 2016 is $50.

4.

To determine

Identify the interest expense to be recorded in 2017.

4.

Expert Solution
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Explanation of Solution

Interest on Bank C note in 2017}=(Total interest on note × Time period for the term 2017)=$90×2045=$40

Therefore, the interest expense recorded in 2017 is $40.

To determine

Prepare journal entry to record the given transaction and events for years 2016 and 2017.

Expert Solution
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Explanation of Solution

DateAccount title and ExplanationDebit in $Credit in $
April 22, 2016Merchandise  inventory5,000
     Accounts payable to Company F5,000
(To record the purchase of merchandise on credit)
May 23Accounts payable to  Company F5,000
     Cash400
     Notes payable-Company F4,600
(Paid $400 cash and gave a 60-day,
  15% note to extend due date on account)
July 15Cash12,000
     Notes payable –Bank S12,000
(Borrowed cash with a 120-day, 10% note.)
July 22Interest expense115
Notes payable –Company F4,600
     Cash4,715
(Paid note with interest.)
November 12Interest expense400
Notes payable –Bank S12,000
     Cash12,400
(Paid note with interest.)
December 6Cash8,000
     Notes payable –Bank C8,000
(Borrowed cash with 45-day, 9% note.)
December 31Interest expense50
     Interest payable50
(Accrued interest on note payable.)
January 20, 2017Interest expense40
Notes payable- Bank C         8,000
Interest payable50
     Cash8,090
(Paid note with interest.)

(Table 2)

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