Friday 30 November 2012

Perfect Systems borrows $160,000 cash on May 15, 2011, by signing a 60-day, 6% note. 1. On what date does this note mature?

Perfect Systems borrows $160,000 cash on May 15, 2011, by signing a 60-day, 6% note.   
1. On what date does this note mature?
   
  July 14, 2011
  
2. Assume the face value of the note equals $160,000, the principal of the loan.
  
(a) Prepare the journal entries to record issuance of the note. (Omit the "$" sign in your response)
  
Date General Journal Debit Credit
  May 15      Cash    
           Notes payable    

  
(b)
Prepare the journal entries to record payment of the note at maturity. (Use 360 days a year. Do not round intermediate calculations and round your final answers to the nearest dollar amount. Omit the "$" sign in your response)
  
Date General Journal Debit Credit
July 14   Interest expense    
    Notes payable    
         Cash    



Explanation: 1.
Maturity date = May 15 + 60 days = July 14, 2011.
 
2
Calculation of Interest Expense
        
  Principal $ 160,000  
  × Interest rate   6 %  
  × Fraction of year   60/360  
  


  Total interest $ 1,600  
  




Tytus Co. entered into the following transactions involving short-term liabilities in 2010 and 2011.


Tytus Co. entered into the following transactions involving short-term liabilities in 2010 and 2011.

  
2010



Apr. 20  
Purchased $38,500 of merchandise on credit from Frier, terms are 1/10, n/30. Tytus uses the perpetual inventory system.
May 19  
Replaced the April 20 account payable to Frier with a 90-day, $30,000 note bearing 7% annual interest along with paying $8,500 in cash.
July 8  
Borrowed $63,000 cash from Community Bank by signing a 120-day, 10% interest-bearing note with a face value of $63,000.
__?__  
Paid the amount due on the note to Frier at the maturity date.
__?__  
Paid the amount due on the note to Community Bank at the maturity date.
Nov. 28  
Borrowed $33,000 cash from UMB Bank by signing a 60-day, 9% interest-bearing note with a face value of $33,000.
Dec. 31  
Recorded an adjusting entry for accrued interest on the note to UMB Bank.
  
2011

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

Required:
1.
Determine the maturity date for each of the three notes described.


Frier
Com. Bank
UMB
  Maturity date
Aug. 17
Nov. 5
Jan. 27



Explanation:
Maturity dates


Frier
Com. Bank
UMB

  Date of the note
May 19     
July 8     
Nov. 28     

  Term of the note (in days)
90     
120     
60     

  Maturity date
Aug. 17     
Nov. 5     
Jan. 27     



2.
Determine the interest due at maturity for each of the three notes. (Use 360 days a year. Do not round your intermediate calculations. Omit the "$" sign in your response.)








Frier
Com. Bank
UMB
  Interest due at maturity
$     
$     
$     



Explanation:
Interest due at maturity
  

Frier
Com. Bank
UMB
  Principal of the note
$
30,000

$
63,000

$
33,000

  Annual interest rate

7
%

10
%

9
%
  Fraction of year

90/360


120/360


60/360

  









  Interest expense
$
525

$
2,100

$
495

  


















3.
Determine the interest expense to be recorded in the adjusting entry at the end of 2010. (Enter 0 if no interest is to be accrued. Use 360 days a year. Do not round your intermediate calculations. Round your final answers to 2 decimal places. Omit the "$" sign in your response.)













  

Frier
Com Bank
UMB
Total
  Accrued interest expense
$    
$    
$    
$    



Explanation:
Accrued interest on UMB note at the end of 2010
   
  


  Total interest for note
$
495  
  Fraction of term in 2010

33/60  
  


  Accrued interest expense
$
272.25  
  






4.
Determine the interest expense to be accrued on 12/31 for the UMB Bank note. (Use 360 days a year. Do not round your intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
     
  Interest expense in 2011
$   

rev: 09_25_2012

Explanation:
Interest on UMB note in 2011
     
  


  Total interest for note
$
495  
  Fraction of term in 2011

27/60  
  


  Interest expense in 2011
$
222.75  

5.
Prepare journal entries for all the preceding transactions and events for years 2010 and 2011. (Use 360 days a year. Do not round your intermediate calculations. Omit the "$" sign in your response.)
  
2010
  
Date
General Journal
Debit
Credit
Apr. 20
  Merchandise inventory
   


       Accounts payable-Frier

  




May 19
  Accounts payable-Frier
  


       Cash

  

       Notes payable-Frier

  




July  8
  Cash
  


       Notes payable-Community

  




  Aug. 17
  Interest expense
  


  Notes payable-Frier
  


       Cash

   




  Nov. 5
  Interest expense
  


  Notes payable-Community
  


       Cash

  




Nov. 28
  Cash
  


       Notes payable-UMB bank

  




Dec. 31
  Interest expense
  


       Interest payable

  


2011
  
Date
General Journal
Debit
Credit
  Jan. 27
  Interest expense
  


  Notes payable-UMB bank
  


  Interest payable
  


       Cash

  



Explanation:
May 19, 2010
Paid $8,500 cash and gave a 90-day, 7% note to extend due date on account.

July 8, 2010
Borrowed cash with a 120-day, 10% note.

Nov. 28, 2010
Borrowed cash with 60-day, 9% note.