Please show the solution for b and c I’ve gotten conflicting answers recently fr
ID: 2430628 • Letter: P
Question
Please show the solution for b and c I’ve gotten conflicting answers recently from classmates and want to see what an outside answer is. During the fiscal year ended December 31, Swanlee Corporation engaged in the following transac- tions involving notes payable. 10.3B ble: Accruing July Sept. Borrowed $20,000 from Weston Bank, signing a 90-day, 12 percent note payable. 16 Purchased office equipment from Moontime Equipment. The invoice amount was S30.000, and Moontime agreed to accept, as full payment, a 10 percent, 3-mont for the invoice amount. Oct. Paid Weston Bank the note plus accrued interest. Dec. 1 Borrowed $170,000 from Jean Jones, a major corporate stockhol issued a $170,000, 5 percent, 120-day note payable. 1 Dec. 1 Purchased merchandise inventory in the amount of $10,000 from Listen Corporation. isten accepted a 90-day, 12 percent note as a full settlement of the purchase. Swan- lee Corporation uses a perpetual inventory system. The $30,000 note payable to Moontime Equipment matured today. Swanlee paid the accrued interest on this note and issued a new 60-day, 12 percent note payable in the Dec. 16 amount of $30,000 to replace the note that matured. Instructions a. Prepare journal entries (in general journal form) to record these transactions. Use a 360-day year in making the interest calculations. b. Preparc the adjusting entry needed at December 31, prior to closing the accounts. Use one entry for a three notes (round to the nearest doliar). Provide a possible explanation why the new 60-day note payable to Moontime Equipment pays 16 percent c. interest instead of the 10 percent rate charged on the September 16 note.Explanation / Answer
(b).
Date
Accounts Title & Explanation
Debit
Credit
Dec. 31
Interest Expense
$958
Interest Payable
$958
(Adjusting entry for interest accrued but not paid)
Working Note;
1. Interest payable on Note payable to jean jones will be calculated as follow;
($170000 * 0.05 * 30 / 360) = $708.33 or $708 (Approx.)
2. Interest payable on Note payable to Listen Corporation will be calculated as follow;
($10000 * 0.12 * 30 / 360) = $100
3. Interest payable on Note payable to Moontime Equipment will be calculated as follow;
($30000 * 0.12 * 15 / 360) = $150
Thus total interest payable on all three note payable ($708 + $100 + $150) = $958
(C).
As we know as per information of the question that Swanlee Corporation have signed a new note payable in place of old note payable. And it is also clear that interest rate on old note payable is 10% but interest rate on new note payable is 12%. So this is very important question that why Swanlee Corporation signed a new note payable which carries higher interest rate. The answer is very simple that Swanlee Corporation is in trouble of liquidity that is why this company had to sign a new note payable because at the time of maturity date Swanlee Corporation have to pay amount of old note payable but due to shortage of cash Swanlee Corporation could not pay amount of old note payable that is why Swanlee Corporation have to sign a new note payable for amount payable to Moontime Equipment.
Date
Accounts Title & Explanation
Debit
Credit
Dec. 31
Interest Expense
$958
Interest Payable
$958
(Adjusting entry for interest accrued but not paid)