REQUIRED: Answer each of the following seven questions: Use the following inform
ID: 2414507 • Letter: R
Question
REQUIRED: Answer each of the following seven questions: Use the following information to answer the next two questions: Meg Co. borrowed $300,000 by giving a 16%, 90 day, $300,000 note payable dated May 14, 2011 at Tolland Bank. Interest is payable at the maturity date. I. The maturity date of Meg Co.'s note would be: 2. At maturity, Meg Co. should record the payment of the note with a journal entry that would include A. a debit to Cash for $348,000 B. a debit to Interest Expense for $48,000. C. a credit to Cash for $348,000 D. a credit to Notes Payable for $300,000. E. None of the above.Explanation / Answer
1) Matuarity date of the Note = 14 May + 90 days
= 17 days of May+30 days of June+31 days of July+12 days of August (90-17-30-31)
= 12 August
Thus the matuarity date of the note will be August 12, 2011 (i.e. 90 days from May 14, 2011).
2) Interest payable on Note = $300,000*16%*90/360 = $12,000 (Assuming 360 days in a year)
Journal Entry on the matuarity date will be :-
Notes Payable $300,000
Interest Expense $12,000
Cash $312,000
Therefore the correct option E) None of the above.
3) The adjusting entry on Dec. 31, 2011 will be for interest expense due on note payable from the date of issue (i.e Oct. 2, 2011) to the date of year end (i.e. Dec. 31, 2011). [for 90 days (29 days Oct.+30 days Nov.+31 days Dec.)]
Interest Payable = $80,000*15%*90/360 = $3,000 (Assuming 1 year = 360 days)
The adjusting journal entry on Dec. 31, 2011 will be :-
Interest Expense will be debited by $3,000 and interest payable will be credited by $3,000.
Therefore the correct option is A) Debit to Interest Expense of $3,000.
4) The adjusting entry on Dec. 31, 2011 will be for interest revenue due on note receivable from the date of issue (i.e Nov. 16, 2011) to the date of year end (i.e. Dec. 31, 2011). [for 45 days (14 days Nov.+31 days Dec.)]
Interest Receivable = $80,000*12%*45/360 = $1,200 (Assuming 1 year = 360 days)
The adjusting journal entry on Dec. 31, 2011 will be :-
Interest Receivable will be debited by $1,200 and interest revenue will be credited by $1,200.
Therefore the correct option is A) Debit to Interest Receivable of $1,200.
5) Current Assets = Cash+Accounts Receivable+Office Supplies+Inventory, 12/31/2011+Prepaid Insurance
= $30,000+$80,000+$1,500+$25,000+$9,000 = $145,500
Therefore total current assets on December 31, 2011 balance sheet are $145,500.
6) Total Long Term Assets = (Equipment - Accumulated Depreciation-Equip)+Land
= ($80,000-$6,000)+$30,000 = $74,000+$30,000 = $104,000
Therefore total long term assets on December 31, 2011 balance sheet are $104,000.
7) Current Liabilities = Unearned Revenue+Allowance for Bad debts+Accounts Payable
= $5,000+$800+$50,000 = $55,800
Therefore total current liabilities on December 31, 2011 balance sheet are $55,800.
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