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watHmore Clot X https://newconnect.mheducation.com/flow/connect.html am Chapters 7, 12, 13, 14, and 15 Saved Help Save & Exit Subm Blanton Plastics, à household plastic product manufacturer, borrowed $30 million cash on October 1, 2018, to provide working capital for year-end production. Blanton issued a four-month, 14% promissory note to L&T; Bank under a prearranged short-term line of credit. Interest on the note was payable at maturity. Each firm's fiscal period is the calendar year Required 1. Prepare the journal entries to record (a) the issuance of the note by Blanton Plastics and (b) L&T; Bank's receivable on October 1, 2018 2. Prepare the journal entries by both firms to record all subsequent events related to the note through January 31, 2019 3. Suppose the face amount ofthe note was adjusted to include interest a no interest-bearing note and 14% is bank's stated discount the rate. (a) Prepare the journal entries to record the issuance of the noninterest-bearing note by Blanton Plastics on October 1, 2018, the adjusting entry at December 31, and payment of the note at maturity, would be the effective interest rate? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B 2:25 4/29

Explanation / Answer

1 General Entries Debit credit Blanton Plastics Cash $30,000,000 Notes Payable $30,000,000 L & T Bank Notes Receivable $30,000,000 Bank $30,000,000 2 General Entries Debit credit Adjusting Entries - 31/12/2018 Blanton Plastics Interest Expnse $1,050,000 [30,000,000*14%*3m/12months] Interest Payable $1,050,000 L & T Bank Interest receivable $1,050,000 Interest Revenue $1,050,000 Maturity - 31/01/2018 Interest Expense $350,000 [30,000,000*14%*1/12months] Interest Payable $1,050,000 Notes Payable $30,000,000 Cash $31,400,000 L & T Bank Cash A/c $31,400,000 Interest Revenue $350,000 Interest receivable $1,050,000 Notes Receivable $30,000,000 3a) General Entries Debit credit 01-Oct Issuance ofnotes Blanton Plastics Cash $28,600,000 Discount on notes payabe $1,400,000 Notes Payable $28,600,000 Adjusting Entries - 31/12/2018 Interest Expnse $1,050,000 Discount on notes payable $1,050,000 Maturity - 31-jan-019 Interest Expnse $350,000 Discount on notes payable $350,000 Notes Payable $30,000,000 Cash $30,000,000 3b) Effective Interest Rate = Discount/Net Proceeds =1400000/28600000 = 4.9% Interest Rate for 4 months = 4.9% Annual Effective rate = 14.7%

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