In: Accounting
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. | 
| 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 | ||||||||