Problem 9-1B Short-term notes payable transactions and entries Warner Co. entere
ID: 2472445 • Letter: P
Question
Problem 9-1B
Short-term notes payable transactions and entries
Warner Co. entered into the following transactions involving short-term liabilities in 2014 and 2015.
2014
2015
Required
Determine the maturity date for each of the three notes described.
Determine the interest due at maturity for each of the three notes. (Assume a 360-day year.)
Determine the interest expense to be recorded in the adjusting entry at the end of 2014.
Determine the interest expense to be recorded in 2015.
Prepare journal entries for all the preceding transactions and events for years 2014 and 2015.
Check(2) Fox, $115
(3) $50
(4) $40
Explanation / Answer
Due date calculations of notes payable
Spring bank
(120-day note) july (31 – 15) = 8 days left in May
august = 31 days
September = 30 days
October = 31
100 days so far
november (120 – 100) =20th day of november (due date)
120 Total
Fox products
(60-day note) May (31 – 23) = 8 days left in May
June = 30 days
38 days so far
July (60 – 38) =22th day of July (due date)
60 Total
(45-day note) Dec (31 – 6) = 25 days left in May
25 days so far
Jan (45 – 25) =20th day of Jan (due date)
45 Total
calculation of interest payments on due dates
The interest is calculated by using following formula’
Interest =( principal amount * interest rate /360) * note payable days
interest to be paid on maturity of fox products
interest = (4600 * 15%/360)*60
interest = 114.99 0r $115
interest to be paid on maturity of spring bank
interest = (12000 * 10%/360)*120
interest = 399.99 0r $400
interest to be paid on maturity of Citi bank
interest = (8000 * 9%/360)*45
interest = 399.99 0r $90
3) Determine the interest expense to be recorded in the adjusting entry at the end of 2014 ,
The note payable of Citibank is issued in 6 December 2014 and the interest amount to be calculated for 2014 is for 25 days see the due date notes payable calculation of Citibank above
The interest for 25 days is = (8000*9%/360)*25
Interest for 2014 is = $50
4) Determine the interest expense to be recorded in 2015.
The note payable of Citibank is issued in 6 December 2014 and the interest amount to be calculated for 2015 is for 20 days see the due date notes payable calculation of Citibank above
The interest for 20 days is = (8000*9%/360)*20
Interest for 2015 is = $40