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Short Term Notes Payable

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Warner Co. entered into the following transactions involving short-term liabilities in 2007 and 2008.

2007

Apr. 22 Purchased $5,000 of merchandise on credit from Fox Products, terms are 1/10, n/30. Warner uses the perpetual inventory system.

May 23 Replaced the April 22 account payable to Fox Products with a 60-day, $4,600 note bearing
15% annual interest along with paying $400 in cash.

July 15 Borrowed $12,000 cash from Spring Bank by signing a 120-day, 10% interest-bearing note
With a face value of $12,000.

__?___ Paid the amount due on the note to Fox Products at maturity.

__?___ Paid the amount due on the note to Spring Bank at maturity.

Dec. 6 Borrowed $8,000 cash from City Bank by signing a 45-day, 9% interest-bearing note with a
Face value of $8,000.
31 Recorded an adjusting entry for accrued interest on the note to City Bank.

2008

__?___ Paid the amount due on the note to City Bank at maturity.

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 2007.
Determine the interest expense to be recorded in 2008.
Prepare journal entries for all the preceding transactions and events for years 2007-2008.

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Solution Summary

Excel spreadsheet attached shows the maturity date and interest due for three notes as well as journal entries for transactions from previous years.

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Warner Co. entered into the following transactions involving short-term liabilities in 2007 and 2008.

2007

Apr. 22 Purchased $5,000 of merchandise on credit from Fox Products, terms are 1/10, n/30. Warner uses the perpetual inventory system.

May 23 Replaced the April 22 account payable to Fox Products with a 60-day, $4,600 note bearing
15% annual interest along with paying ...

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