Many businesses borrow money during periods of increased business activity to fi
ID: 2783128 • Letter: M
Question
Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Target Corporation is one of America’s largest general merchandise retailers. Each Christmas, Target builds up its inventory to meet the needs of Christmas shoppers. A large portion of Christmas sales are on credit. As a result, Target often collects cash from the sales several months after Christmas. Assume that on November 1, 2015, Target borrowed $6.7 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 7.00 percent payable at maturity. The accounting period ends December 31.
Complete the required journal entries to record the note on November 1, 2015, interest on the maturity date, April 30, 2016, assuming that interest has not been recorded since December 31, 2015. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
1
Record the borrowing of $6,700,000.
2
Record the interest accrued on the note payable as of December 31, 2015.
3
Record the repayment of the note plus interest on the maturity date.
Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Target Corporation is one of America’s largest general merchandise retailers. Each Christmas, Target builds up its inventory to meet the needs of Christmas shoppers. A large portion of Christmas sales are on credit. As a result, Target often collects cash from the sales several months after Christmas. Assume that on November 1, 2015, Target borrowed $6.7 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 7.00 percent payable at maturity. The accounting period ends December 31.
Required: 1,2&3.Complete the required journal entries to record the note on November 1, 2015, interest on the maturity date, April 30, 2016, assuming that interest has not been recorded since December 31, 2015. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
1
Record the borrowing of $6,700,000.
2
Record the interest accrued on the note payable as of December 31, 2015.
3
Record the repayment of the note plus interest on the maturity date.
No Date General Journal Debit Credit 1 November 01, 2015 Cash 6,700,000 1 Note Payable (short-term) 6,700,000 2 December 31, 2015 Interest Expense 2 Interest Payable 3 April 30, 2016 Note Payable (short-term) 6,700,000 3 Interest Payable 3 Interest Expense 156,333 3 CashExplanation / Answer
At 31 december the entries would be
Interest expense would be debited and it would be for 2 month only so it would be 6.7 mn * 7% *2/12 = .078 mn
Interest Payable would be credited equal amount i.e. .078 mn
at April, 2016
Cash would be credited 234500
Interest Payable would be debited 234500
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