3. Notes payable . Red Bank Enterprises was involved in the following transactio

Question

3. Notes payable. Red Bank Enterprises was involved in the following transactions during the fiscal year ending October 31:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

8/2:

Borrowed $75,000 from the Bank of Kingsville by signing a 120-day, 12% note.

8/20:

Issued a $40,000 note to Harris Motors for the purchase of a $40,000 de­livery truck. The note is due in 180 days and carries a 12% interest rate.

9/10:

Purchased inventory from Pans Enterprises in the amount of $15,000. Issued a 30-day, 12% note in settlement of the balance owed.

9/11:

Issued a $60,000 note to Datatex Equipment in settlement of an overdue account payable of the same amount. The note is due in 30 days and car­ries a 14% interest rate.

10/10:

The note to Pans Enterprises was paid in full.

10/11:        The note to Datatex Equipment was paid in full.

11/30:         Paid note to Bank of Kingsville

Instructions

a. Prepare journal entries to record the transactions.

b. Prepare adjusting entries on December 31 to record accrued interest (daily interest is calculated utilizing the 360 day method).

c. Prepare the Current Liability section of Red Bank%u2019s balance sheet as of December 31. Assume that the Accounts Payable account totals $203,600 on this date.

Explanation / Answer

b. calculation for interest accrued to harris motors 40000*12%*130/360 = 1733.333 adjusting entries Interest a/c dr To interest outstanding 1733.33 c. in current liabilities Amt should be shown as interest O/S 1733.33

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