On May 15, Kiwi\'s Outback Clothiers borrowed some money on a4-month note to pro

Question

On May 15, Kiwi's Outback Clothiers borrowed some money on a4-month note to provide cash during the slow season of the year.The interest rate on the note was 8%. At the time the note was due,the amount of interest owed was $320.

(a) Determine the amount borrowed by Kiwi's. $

(b) Assume the amount borrowed was $18,500. What was theinterest rate if the amount of interest owed was $740?(Round to 0 decimal places.) %

(c) Prepare the entry for the initial borrowing and therepayment for the facts in part (a). (Formultiple debit/credit entries, list in order ofmagnitude.)

Initial Borrowing

Repayment

Date Account /Description Debit Credit May 15 Sales tax payableNotes PayableInterest expenseSalesCashAccounts receivableInterest payable $          Interest expenseNotes payableAccounts receivableInterest payableCashSales tax payableSales $

Explanation / Answer

a.

b

c.

15-May

15-Sep

a.

$320 for 4 months for a year is$340 X 3 = $960 Borrowed amount = $960 X 100 / 8 =$12000

b

Borrowed amount = $18500 Interest amount for 4 mpnths = $740 for a year is$740 X 3 = $2220 Interest rate = $2220 / $18500 =12%

c.

Initial Borrowing

15-May

Cash $12,000        Notes payable $12,000 Repayment

15-Sep

Notes payable $12,000 Interest expense $340           Cash $12,340

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