Short term notes payable:
Short term notes payable are the short term financing instruments used in business. It’s a short term liability for business.
Solution:
Given,
F note issued on April 22, 2016 amounting $5,000 for 30 days.
S note issued on July 15, 2016 amounting to $12,000 for 120 days at 9%.
C note issued on December 6, 2016 amounting to $8,000 for 45 day at 8%.
1.
To calculate: The date of maturity of notes.
Explanation of Solution
Date of maturity of notes
S. No. | Notes | Issue date | Term | Maturity Date |
1 | F | May 23, 2016 | 60 days | July 23,2016 |
2 | S | July 15, 2016 | 120 days | November 15, 2016 |
3 | C | December 6, 2016 | 45 days | January 20, 2017 |
Table (1)
Thus, maturity date for note F is July 23,2016S is November 15, 2016 and C is January 20, 2017
2.
To calculate: Interest due at maturity.
2.
Explanation of Solution
Formula to calculate interest due at maturity,
For F
Substitute $4,600 for principal, .15 for interest rate and 90 days for term of note.
For S
Substitute $12,000 for principal, .10 for interest rate and 120 days for term of note.
For C
Substitute $8,000 for principal, .09 for interest rate and 45 days for term of note.
Thus, interest due at maturity of F is $115, S is $400 and C is $90.
3.
To calculate: Interest expense to be recorded in the
3.
Explanation of Solution
Formula to calculate interest expense to be recorded in the adjusting entry at the end of 2016,
For C
Substitute $8,000 for principal, 0.09 for interest rate and 25 days for number of days in 2016.
Thus , $50 is the interest expense to be recorded in the adjusting entry at the end of 2016
Working note:
Calculation of number of days of Note C in 2016,
4.
To calculate: Interest expense to be recorded in 2017.
4.
Explanation of Solution
Formula to calculate interest expense to be recorded in 2017,
For C
Substitute $8,000 for principal, 0.09 for interest rate and 20 days for number of days in 2016.
Thus, $40 is the interest expense to be recorded in 2017
Working note:
Calculation of number of days of Note C in 2017,
5.
To prepare:
5.
Explanation of Solution
Journal entry for all transactions
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
April 22,2016 | Inventory | 5,000 | ||
Account Payable -L | 5,000 | |||
(To record purchase of inventory) |
Table (2)
- Inventory is an asset account. Since company has received inventory, balance of inventory has increased. Hence it is debited.
- Account payable is a liability account. Since it is increasing, this account is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
May 23,2016 | Account Payable - L | 5,000 | ||
Notes Payable | 4600 | |||
Cash | 400 | |||
(To record issuance of notes against loan of L) |
Table (3)
- Account payable - L is a liability account. Since it is decreasing, this account is debited.
- Notes payable is a liability account. Company is issuing note, so balance of note is increasing, hence credit this account.
- Cash is an asset account. Since company has paid cash, balance of cash has decreased. Hence it is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 15,2016 | Cash | 12,000 | ||
Notes Payable - S | 12,000 | |||
(To record notes payable from N Bank) |
Table (4)
- Cash is an asset account. Since company has received cash, balance of cash has increased. Hence it is debited.
- Note Payable is a liability account. Since it is increasing, this account is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
July 23,2016 | Notes Payable | 4,600 | ||
Interest expenses | 115 | |||
Cash | 4,715 | |||
(To record notes paid with interest) |
Table (5)
- Notes payable is a liability account. Since it is decreasing, this account is debited.
- Interest expenses are an expense account. Since company is paying these expenses, it is debited.
- Cash is an asset account. Since company has paid cash, balance of cash has decreased. Hence it is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
November 12,2016 | Notes Payable | 12,000 | ||
Interest expenses | 400 | |||
Cash | 12,400 | |||
(To record notes paid with interest) |
Table (6)
- Notes payable is a liability account. Since it is decreasing, this account is debited.
- Interest expenses are an expense account. Since company is paying these expenses, it is debited.
- Cash is an asset account. Since company has paid cash, balance of cash has decreased. Hence it is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
December 6,2016 | Cash | 8,000 | ||
Notes Payable | 8,000 | |||
(To record notes payable ) |
Table (7)
- Cash is an asset account. Since company has received cash, balance of cash has increased. Hence it is debited.
- Note payable is a liability account. Since it is increasing, this account is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
December 31,2016 | Interest expenses | 50 | ||
Interest Payable | 50 | |||
(To record notes payable ) |
Table (8)
- Interest expense is an expense account. Since its balance is increasing, it is to be debited.
- Interest payable is a liability account. Since it is increasing, this account is credited.
Date | Account Title and Explanation | Post ref | Debit($) | Credit($) |
January 20,2017 | Notes Payable | 8,000 | ||
Interest Payable | 50 | |||
Interest expenses | 40 | |||
Cash | 8,090 | |||
(To record notes paid with interest) |
Table (9)
- Notes payable is a liability account. Since it is decreasing, this account is debited.
- Interest payable is a liability account. Since company is paying this liability, it is debited.
- Interest expenses are an expense account. Since company is paying these expenses, it is debited.
- Cash is an asset account. Since company has paid cash, balance of cash has decreased. Hence it is credited.
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Chapter 9 Solutions
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