On November 16, 2016, Clear Glass Company borrowed $24,000 from First American B

Question

On November 16, 2016, Clear Glass Company borrowed $24,000 from First American Bank by issuing a 90-day, non-interest-bearing note. The bank discounted this note at 12% and remitted the difference to Clear Glass.

Required:

General Journal

1. Prepare the journal entries of Clear Glass to record the preceding information, the related calendar year-end adjusting entry, and payment of the note at maturity. 2. Show how the preceding items would be reported on the December 31, 2016, balance sheet. 3. Next Level What is Clear Glass Company’s effective interest rate?

Explanation / Answer

Required journal entries are as prepared below:

Items recorded on December 31, balance sheet will be:

Effective interest rate is 12%

Year Particulars L.F Debit Credit 2016 Nov-16 Cash 24,000 12% Note payable 24,000 (For cash borrowed) Dec-31 Interest Expense (24,000*12%*45/360) 360 Interest Payable 360 (for Interest accrued for 45 days) 2017 Feb-14 12% Note payable 24,000 cash 24000 (for Note paid) Feb-14 Interest Expense (24,000*12%*45/360) 360 Interest payable 360 Cash 720 (for Interest paid)

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