Tyrell Co. entered into the following transactions involving short-term liabilit
ID: 2416481 • Letter: T
Question
Tyrell Co. entered into the following transactions involving short-term liabilities in 2014 and 2015.
2014
Apr. 20 Purchased $40,250 of merchandise on credit from Locust, terms are 1/10, n/30. Tyrell uses the perpetual inventory system.
May 19 Replaced the April 20 account payable to Locust with a 90-day, $35,000 note bearing 10% annual interest along with paying $5,250 in cash.
July 8 Borrowed $80,000 cash from National Bank by signing a 120-day, 9% interest bearing note with a face value of $80,000.
? Paid the amount due on the note to Locust at the maturity date.
? Paid the amount due on the note to National Bank at maturity date.
Nov.28 Borrowed $42,000 cash from Fargo Bank by signing a 60-day, 8% interest-bearing note with a face value of $42,000.
Dec.31 Recorded an adjusting entry for accrued interest on the note to Fargo Bank.
2015
? Paid the amount due on the note to Fargo bank at the maturity date.
Required
Determine the maturity date for each of the three notes described.
Determine the interest due at maturity for each of the three notes. (Assume a 360-day year)
Determine the interest expense to be recorded in the adjusting entry at the end of 2014.
Determine the interest expense to be recorded in 2015.
Prepare journal entries for all the preceding transactions and events for years 2014 and 2015.
Explanation / Answer
MAY 19 90 DAYS $35000 10% NOTE , MATURITY DATE = AUGUST 16 2014
JULY 8 120 DAYS 9% INTEREST BEARING NOTE MATURITY DATE = NOVEMBER 5 2014
NOV 28 60 DAYS 8% BERAING NOTE MATURITY DATE = JANUARY 26 2015
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INTEREST DUE ON 90 DAYS $35000 10% NOTE ($35000 * 10%) * 90/360 =$875
INTEREST DUE ON 120 DAYS 9% INTEREST BEARING NOTE ($80000 * 9%) * 120 /360 = $2400
INTEREST DUE ON 60 DAYS 8% BERAING NOTE ($42000 * 8%) * 60/360 = $560
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INTEREST EXPENSES ON 90 DAYS $35000 10% NOTE FOR 2014 = $875
INTEREST EXPENSES ON 120 DAYS 9% INTEREST BEARING NOTE FOR 2014 = $2400
INTEREST EXPENSES ON 60 DAYS 8% BERAING NOTE FOR 2014 ($560 * 34DAYS / 60DAYS) = $317.33
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INTEREST EXPENSES ON 90 DAYS $35000 10% NOTE FOR 2015 = NIL
INTEREST EXPENSES ON 120 DAYS 9% INTEREST BEARING NOTE FOR 2015 = NIL
INTEREST EXPENSES ON 60 DAYS 8% BERAING NOTE FOR 2015 ($560 * 26DAYS / 60DAYS) = $242.67
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APRIL 20 MERCHENDISE A/C.......................................DR $40250
TO ACCOUNTS PAYBLE A/C $40250
MAY 19 ACCOUNTS APYBLE A/C.....................................DR $40250
TO 10% NOTE A/C $35000
TO CASH A/C $5250
JULY 8 CASH A/C.................................................DR $80000
TO 9% NOTE A/C $80000
AUGUST 16 10% NOTE A/C....................................DR $35000
INTEREST EXPENSES A/C.................DR $875
TO CASH A/C $35875
NOV 5 9% NOTE A/C....................................DR $80000
INTEREST EXPENSES A/C................DR $2400
TO CASH A/C $82400
NOV 28 CASH A/C.......................................DR $42000
TO 8% NOTE A/C $42000
DEC 31 INTEREST EXPENSES ON 8%NOTE A/C....................DR $317.33
TO ACCURED INTEREST A/C $317.33
JAN 26 8% NOTE A/C...................................................DR $42000
INTEREST EXPENSES A/C..............................DR242.67
ACCURED INTEREST A/C..................................DR $317.33
TO CASH A/C $42560
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