Question

In: Accounting

Tyrell Co. entered into the following transactions involving short-term liabilities in 2016 and 2017. 2016 Apr....

Tyrell Co. entered into the following transactions involving short-term liabilities in 2016 and 2017.

2016

Apr. 20 Purchased $40,000 of merchandise on credit from Locust, terms n/30. Tyrell uses the perpetual inventory system.
May 19 Replaced the April 20 account payable to Locust with a 90-day, $35,000 note bearing 8% annual interest along with paying $5,000 in cash.
July 8 Borrowed $57,000 cash from NBR Bank by signing a 120-day, 11% interest-bearing note with a face value of $57,000.
__?__ Paid the amount due on the note to Locust at the maturity date.
__?__ Paid the amount due on the note to NBR Bank at the maturity date.
Nov. 28 Borrowed $27,000 cash from Fargo Bank by signing a 60-day, 6% interest-bearing note with a face value of $27,000.
Dec. 31 Recorded an adjusting entry for accrued interest on the note to Fargo Bank.


2017

__?__ Paid the amount due on the note to Fargo Bank at the maturity date.

Solutions

Expert Solution

1) Maturity date
locust NBR fargo
date of the note 19-May 8-Jul 28-Nov
term of note 90 120 60
maturity date 17-Aug 5-Nov 27-Jan
2) interest due at maturity
principal * Rate * time = interest
locust 35,000 * 8% * 90/360 = 700
NBR 57,000 * 11% * 120/360 = 2090
Fargo 27,000 * 6% * 60/360 = 270
3) Amount in adjusting entry
42,000*8%*33/360
149
Fargo Bank
principal * Rate * time = interest
interest to be acccrued in 2016 27,000 * 6% * 33/360 = 148.5
4) interest expense to be recorded in 2017
122
principal * Rate * time = interest
interest to recorded in 2018 27,000 * 6% * 27/360 = 121.5
Journal entries
Date Accounting titles & Explanations Debit Credit
2016
20-Apr inventory 40,000
Accounts payable 40,000
19-May Accounts payable 40,000
cash 5,000
notes payable 35,000
8-Jul Cash 57,000
notes payable 57,000
17-Aug notes payable 35,000
interest expense 700
cash 35,700
5-Nov notes payable 57,000
interest expense 2,090
cash 59,090
28-Nov Cash 27,000
notes payable 27,000
31-Dec interest expense 149
interest payable 149
2017
27-Jan notes payable 27,000
interest payable 149
interest expense 122
cash 27,270

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