PROBLEM 10.3B Notes Payable: Accruing Interest | During the fiscal year ended December 31, Swanlee Corporation engaged in the following transactions involving notes payable: July 1 | Borrowed $20,000 from Weston Bank, signing a 90-day, 12 percent note payable. | Sept. 16 | Purchased office equipment from Moontime Equipment. The invoice amount was $30,000, and Moontime agreed to accept, as full payment, a 10 percent, three-month note for the invoice amount. | Oct. 1 | Paid Weston Bank the note plus accrued interest. | Dec. 1 | Borrowed $170,000 from Jean Jones, a major corporate stockholder. The corporation issued a $170,000, 5 percent, 120-day note payable. | Dec. 1 | Purchased merchandise inventory in the amount of $10,000 from Listen Corporation. Listen accepted a 90-day, 12 percent note as a full settlement of the purchase. Swanlee Corporation uses a perpetual inventory system. | Dec. 16 | The $30,000 note payable to Moontime Equipment matured today. Swanlee paid the accrued interest on this note and issued a new 60-day, 12 percent note payable in the amount of $30,000 to replace the note that matured. |
Instructions - Prepare journal entries (in general journal form) to record the above transactions. Use a 360-day year in making the interest calculations.
- Prepare the adjusting entry needed at December 31, prior to closing the accounts. Use one entry for all three notes (round to the nearest dollar).
- Provide a possible explanation why the new 60-day note payable to Moontime Equipment pays 16 percent interest instead of the 10 percent rate charged on the September 16 note.
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Account_tutor
10 years ago
problem_10.3b_solution.xlsx
