[The following information applies to the questions displayed below.] Tyrell Co.

Question

[The following information applies to the questions displayed below.]

Tyrell Co. entered into the following transactions involving short-term liabilities in 2016 and 2017.

2016

2017

3. Determine the interest expense to be recorded in the adjusting entry at the end of 2016. (Do not round your intermediate calculations. Use 360 days a year.)

Year End Accrual Required For:Fargo BankPrincipalxRatexTime=InterestInterest to be accrued in 2016x%x=

Apr. 20 Purchased $40,250 of merchandise on credit from Locust, terms n/30. Tyrell 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 NBR 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 Locust at the maturity date. ___?___ Paid the amount due on the note to NBR 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.

Explanation / Answer

Solution:

Interest to be Accrued at the end of the year;

= Principal*rate*time

= 42000*8%*(33/360) = $308

Alternative:

Accrued interest expense = Total interest for the note*Fraction of term in 2016

= (42000*8%*60/360)*(33/60) = $308

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