On May 15, Gott\'s Outback Clothiers borrowed some money on a 4-month note to pr

Question

On May 15, Gott's Outback Clothiers borrowed some money on a 4-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 $400.

(a) Determine the amount borrowed by Gott's.

$

(b) Assume the amount borrowed was $18,500. What was the interest rate if the amount of interest owed was $555? (Round to 0 decimal places, e.g. 2.)

%

(c) Prepare the entry for the initial borrowing and the repayment for the facts in the first part of the question. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Initial Borrowing

Date Account/Description Debit Credit
May 15


Repayment

Date Account/Description Debit Credit
Sept. 15

Explanation / Answer

a.

b

c.

15-May

15-Sep

a.

$400 for 4 months for a year is$400 X 3 = $1200 Borrowed amount = $1200 X 100 / 8 =$15000

b

Borrowed amount = $18500 Interest amount for 4 mpnths = $555 for a year is$555X 3 = $1665 Interest rate = $1665/ $18500 =.09

c.

Initial Borrowing

15-May

Cash $15,000        Notes payable $15,000 Repayment

15-Sep

Notes payable $15,000 Interest expense $400           Cash $15400

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