Tanning Corp. was experiencing cash flow problems and was unable to pay its $123
ID: 2438786 • Letter: T
Question
Tanning Corp. was experiencing cash flow problems and was unable to pay its $123,600 account payable to Sun Corp. when it fell due on September 30, 2017.
Sun Corp. agreed to substitute a one-year note for the open account. The following two options were presented to Tanning Corp by Sun Corp.:
Assume that Sun Corp. has a December 31 year end.
A) Assuming Tanning Corp. chooses Option 1, prepare the entries required on Sun Corp.’s books on September 30, 2017, December 31, 2017, and September 30, 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)
No. Account Titles and Explanation______Debit________-Credit
Date
_______________
________________
Date
________________
________________
Date
________________
_________________
_________________
________________
B) Assuming Tanning Corp. chooses Option 2, prepare the entries required on Sun Corp.’s books on September 30, 2017, December 31, 2017, and September 30, 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)
No. Account Titles and Explanation______Debit________-Credit
Date
______________________
______________________
Date
______________________
_______________________
Date
______________________
_____________________
To record Interest
Date
__________________
___________________
To record Notes
Option 1: A one-year note for $123,600 due September 30, 2018. Interest at a rate of 9% would be payable at maturity. Option 2: A one-year non–interest-bearing note for $134,724. The implied rate of interest is 9%.Explanation / Answer
A. In the books of Sun Corp. :
B. In the books of Sun Corp.
Date Account Titles Debit Credit $ $ Sep 30, 2017 Note Receivable 123,600 Accounts Receivable 123,600 Dec 31, 2017 Interest Receivable ( $ 123,600 x 9 % x 3/12) 2,781 Interest Revenue 2,781 Sep 30, 2018 Cash 134,724 Interest Receivable 2,781 Interest Revenue 8,343 Note Receivable 123,600Related Questions
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