Question

Chapter 9 Question 1:

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

2016

Apr.		20		Purchased $39,500 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 7% annual interest along with paying $4,500 in cash.
July		8		Borrowed $60,000 cash from NBR Bank by signing a 120-day, 11% interest-bearing note with a face value of $60,000.
__?__				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 $30,000 cash from Fargo Bank by signing a 60-day, 9% interest-bearing note with a face value of $30,000.
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. 1A. Determine the maturity date for each of the three notes described. Maturyity day of: locust, NBR Bank, Fargo Bank

LocustNBR BankFargo BankMaturity date

1B. Determine the interest due at maturity for each of the three notes. (Do not round your intermediate calculations. Use 360 days a year.)

PrincipalxRatexTime=InterestLocustx%x=NBR Bankx%x=Fargo Bankx%x=

1C. Determine the interest expense to be recorded in the adjusting entry at the end of 2016. (Do not round your intermediate calculations. Use 360 days a year.)

Year end accrual required for:Fargo BankPrincipalxRatexTime=InterestInterest to be accrued in 2016x%x=

1D. Determine the interest expense to be recorded in 2017. (Do not round intermediate calculations and round your final answers to nearest whole dollar. Use 360 days a year.)

  Year end accrual required for:Fargo BankPrincipalxRatexTime=InterestInterest to be recorded in 2017x%x=

Answer 1

Answer

1 A.

	locust	NBR Bank	Fargo Bank
Date of note	May 19	July 8	Nov 28
Term of note (in days)	90	120	60
Maturity date	Aug 17	Nov 5	Jan 27

B.

The interest due at maturity for each of the three notes:

Locust                  =35000*7%*90/360    =613

NBR Bank            =60000*11%*120/360 =2200

Fargo Bank          =300000*9%*60/360   =450

(Interest expense=Principal*Annual interest rate*Time)

C.

The interest expense to be recorded in the adjusting entry at the end of 2016:

accrued interest on the note to Fargo Bank.

30000*9%*33/360 = $248

d.

The interest expense to be recorded in 2017

30000*9%*27/360 = 202

                 or

Interest exp. = Total interest expense-interest expense to be recorded in 2016

=450-248 = 202