Tytus Co. entered into the following transactions involving short-term liabiliti
ID: 2380089 • Letter: T
Question
Tytus Co. entered into the following transactions involving short-term liabilities in 2012 and 2013
2012
Apr. 20 Purchased $40,250 of merchandise on credit from Locust, terms are 1/10, n/30. Tytus 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 Frier at the maturity date.
__?__ Paid the amount due on the note to Community Bank at the 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.
2013
__?__ Paid the amount due on the note to Fargo Bank at the maturity date.
1. Determine the maturity date for each of the three notes described.
2. Determine the interest due at maturity for each of the three notes.( Assume a 360-day year)
3. Determine the interest expense to be recorded in the adjusting entry at the end of 2012.
4. Determine the interest expense to be recorded in 2013.
5. Prepare journal entries for all the preceding transactions and events for years 2012 and 2013.
Explanation / Answer
2010
Apr. 20
Purchased $38,000 of merchandise on credit from Frier, terms are 1/10, n/30. Tytus uses the perpetual inventory system.
Dr Merchandise Inventory 38,000
Cr Accounts Payable 38,000
May 19
Replaced the April 20 account payable to Frier with a 90-day, $30,000 note bearing 8% annual interest along with paying $8,000 in cash.
Dr Accounts Payable 38,000
Cr Notes Payable 30,000
Cr Cash 8,000
July 8
Borrowed $57,000 cash from Community Bank by signing a 120-day, 12% interest-bearing note with a face value of $57,000.
Dr Cash 57,000
Cr Notes Payable 57,000
Aug 17
Paid the amount due on the note to Frier at the maturity date.
30,000 x 8% x 90/360 = $600 interest
Dr Notes Payable 30,000
Dr Interest Expense 600
Cr Cash 30,600
Nov. 5
Paid the amount due on the note to Community Bank at the maturity date.
57,000 x 12% x 120/360 = $2,280 interest
Dr Notes Payable 57,000
Dr Interest Expense 2,280
Cr Cash 59,280
Nov. 28
Borrowed $30,000 cash from UMB Bank by signing a 60-day, 6% interest-bearing note with a face value of $30,000.
Dr Cash 30,000
Cr Notes Payable 30,000
Dec. 31 Recorded an adjusting entry for accrued interest on the note to UMB Bank.
33 days of interest has accrued
30,000 x 6% x 33/360 = $165 accrued interest
Dr Interest Expense 165
Cr Interest Payable 165
2011
Jan. 27
Paid the amount due on the note to UMB Bank at the maturity date.
27 more days of interest expense has accrued.
30,000 x 6% x 27/360 = $135 more accrued interest
Dr Notes Payable 30,000
Dr Interest Payable 165
Dr Interest Expense 135
Cr Cash 30,300
With these journal entries you should be able to answer the questions
1.Determine the maturity date for each of the three notes described (Frier, Com Bank, UMB)
2.Determine the interest expense to be recorded in the adjusting entry at the end of 2010. (Frier, Com Bank, UMB)
3.Determine the interest due at maturity for each of the three notes.
4. Determine the interest expense to be recorded in 2011.
***Use 360 day year***
5.Prepare journal entries for all the preceding transactions and events for years 2010 and 2011
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