Question
Montag Co. entered into the following transactions involving short-term liabilities in 2008 and 2009.
2008
Apr. 20
Purchased $48,250 of merchandise on credit from Locust, terms are 1/10, n/30. Montag uses the perpetual inventory system.
May 19
Replaced the April 20 account payable to Locust with a 120-day, $39,000 note bearing 9% annual interest along with paying $9,250 in cash.
July 8
Borrowed $120,000 cash from National Bank by signing a 120-day, 8.5% interest-bearing note with a face value of $100,000.
__?__
Paid the amount due on the note to Locust at the maturity date.
__?__
Paid the amount due on the note to National Bank at the maturity date.
Nov. 28
Borrowed $60,000 cash from Fargo Bank by signing a 60-day, 8% interest-bearing note with a face value of $60,000.
Dec. 31
Recorded an adjusting entry for accrued interest on the note to Fargo Bank.
2009
__?__
Paid the amount due on the note to Fargo Bank at the maturity date.
Requirement 1:
Determine the maturity date for each of the three notes described.
Explanation / Answer
Maturity dates for the three months: Let us calculate the maturity date for the note of Locust. Locust note is a 120 day note issued on May 19. As the note is a 120 day note its maturity day will arrive after the 120 days, so the maturity date can be calculated as follows; Maturity date (120 days) = may 19 to june 19 (30 days) + june 19 to july 19 (30 days) + july 19 to august 19 (30 days) + august 19 to september 19 (30 days) By the end of the september 19th 120 days will be completed, so the maturity date will be september 19th for the Locust note. Maturity date for the note of National bank: As its period is120 days its maturity date will be after 120 days. It has issued on July 8th. the maturity date for the national bank also can be calculated as in the above case. So the maturity date for this note is November 8th. Maturity date for the Fargo bank note: The Fargo bank note isued on November 28th, and its period is 60 days. So its maturity date will come after 60 days that is next year January 28th. Adjusting entry for accrued interest on December 31: Dr Cr Notes payable $60,000 Interest expense payable 4,400 Cash 64,400 (Interest expense = 60,000 x 8/100 x 33 days/360 days) Dr Cr Notes payable $60,000 Interest expense payable 4,400 Cash 64,400 (Interest expense = 60,000 x 8/100 x 33 days/360 days)