Question

Required information [The following information applies to the questions displayed below.] Tyrell Co. entered into the following transactions involving short-term liabilities. Year 1 Apr. 20 Purchased $38,000 of merchandise on credit from Locust, terms n/30. May 19 Replaced the April 20 account payable to Locust with a 90-day, 8%, $35,000 note payable along with paying $3,000 in cash. July 8 Borrowed $63,000 cash from NBR Bank by signing a 120-day, 10%, $63,000 note payable. __?__ 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 $24,000 cash from Fargo Bank by signing a 60-day, 6%, $24,000 note payable. Dec. 31 Recorded an adjusting entry for accrued interest on the note to Fargo Bank. Year 2 __?__ Paid the amount due on the note to Fargo Bank at the maturity date.

Answer 1

Year 1

1st April '20 Purchase a/c Dr $38000

To locust a/c $38000

( Being merchandise/ Inventory purchased as credit)

19 May '20 Locust a/c Dr ( 30 days credit) $38000

  To cash a/c $3000

To locust a/c (90 days credit period    $35000

(Being creditors term changed and cash paid partly)

Here an adjusting entry is posted to transfer locust (creditor) a/c to transfer from 30 days credit slab to 90 days for appropriate calculation of interest.

8th july Bank a/c Dr $63000

To NBR bank loan a/c(10%) $63000

29th june Locust a/c dr (90 days term) $35000

Interest on creditors a/c $700

(35000×90÷360×8%)

To bank a/c $35700

(Being creditor locust created on 1st April, settled along with interest)

29th june P/L a/c dr $ 700

To interest on creditors $700

(Being interest charged by creditors transferred to profit and loss a/c)

4th November NBR Bank loan a/c dr $2100

To bank a/c $2100

(63000×120÷360×10%

28th November Bank a/c dr $24000

To 6% Fargo Bank loan a/c $24000

(Being loan taken from fargo bank for 60 days @6%)

31st December Interest accrued a/c dr $136

To 6% Fargo bank loan $136

(24000×34÷360×6%)

(Being interest accrued on loan taken from fargo bank)

No. of days accrued

November - 3

December - 31

Total days - 34

31st December P/L a/c dr $136

To interest accrued $136

Year 2

26 January Interest accrued a/c dr $104

To 6% Fargo bank loan $104

(Being interest accrued on 6% Forgo loan)

(24000×26÷360×6%)

26th January P/L a/c dr $104

To interest accrued a/c $104

(Being interest accrued charged to P/L a/c)

26th January 6% Fargo Bank loan a/c dr $24240

(24000+136+104)

To bank a/c $24240

(Being loan repaid on due date)