Brief Exercise 13-3 Ivanhoe Corporation borrowed $61,300 on November 1, 2017, by
ID: 2396791 • Letter: B
Question
Brief Exercise 13-3 Ivanhoe Corporation borrowed $61,300 on November 1, 2017, by signing a $62,710, 3-month, zero-interest-bearing note. Prepare Ivanhoe's November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit To record interest) To pay note)Explanation / Answer
Date Account titles and explanation Debit Credit November 1, 2017 Cash $ 61,300 Notes Payable $ 61,300 (To record amount borrowed by signing a note) December 31, 2017 Interest Expense $ 937.09 Interest Payable $ 937.09 (To record interest accrued at december 31) February 1, 2018 Interest Expense $ 472.90 Interest Payable $ 937.09 Notes Payable $ 61,300 Cash $ 62,710 (To record notes payment along with interest) Working: calculation of discount rate: Present Value = Future Value x (1+i)^-n Where, 61300 = 62710*(1+i)^-3 i ? 0.9775 = (1+i)^-3 n 3 0.9775^(1/-3) = 1+i 1.007614506 = 1+i i = 0.00761451 or, monthly interest rate = 0.76% Annual Interest rate = 9.14% Notes Amortization: Date Beginning Amount Interest expense Ending Amount November 30, 2017 61,300.00 466.77 61,766.77 December 31, 2017 61,766.77 470.32 62,237.09 January 31, 2018 62,237.09 472.90 62,710.00 Total 1,410.00 Less: Interest for 2 months (466.77+470.32) 937.09
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