On October 1, Eder Fabrication borrowed $60 million and issued a nine-month promissory note.
Interest was discounted at issuance at a 12% discount rate.
Prepare the journal entry for the issuance of the note and the appropriate adjusting entry for the note at December 31, the end of the reporting period.
On October 1, Eder Fabrication borrowed $60 million and issued a nine-month promissory note.
Interest was discounted at issuance at a 12% discount rate.
Prepare the journal entry for the issuance of the note and the appropriate adjusting entry for the note at December 31, the end of the reporting period.
Related questions
Blanton Plastics, a household plastic product manufacturer,borrowed $11 million cash on October 1, 2013, to provide workingcapital for year-end production. Blanton issued a four-month, 6%promissory note to L&T Bank under a prearranged short-term lineof credit. Interest on the note was payable at maturity. Eachfirmâs fiscal period is the calendar year. |
| Required: |
| 1. | Prepare the journal entries to record (a) the issuance of thenote by Blanton Plastics and (b) L&T Bankâs receivable onOctober 1, 2013. (If no entry is required for a particulartransaction, select "No journal entry required" in the firstaccount field. Enter your answers in whole dollars.) |
| 2. | Prepare the journal entries by both firms to record allsubsequent events related to the note through January 31, 2014.(If no entry is required for a particular transaction,select "No journal entry required" in the first account field.Enter your answers in whole dollars.) |
| 3. | Suppose the face amount of the note was adjusted to includeinterest (a noninterest-bearing note) and 6% is the bankâs stateddiscount rate. |
| (a) | Prepare the journal entries to record the issuance of thenoninterest-bearing note by Blanton Plastics on October 1, 2013,the adjusting entry at December 31, and payment of the note atmaturity. (If no entry is required for a particulartransaction, select "No journal entry required" in the firstaccount field. Enter your answers in wholedollars.) |
| (b) | What would be the effectiveinterest rate? (Round your answer to 1 decimalplace.) |
