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AccountingIntermediate Accounting: Reporting And Analysis3rd Edition

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Chapter 9, Problem 3E
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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Problem 2GI
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Problem 4GI
Problem 5GI
Problem 6GI
Problem 7GI
Problem 8GI
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Problem 10GI
Problem 11GI
Problem 12GI
Problem 13GI
Problem 14GI
Problem 15GI
Problem 16GI
Problem 17GI
Problem 18GI
Problem 19GI
Problem 20GI
Problem 21GI
Problem 22GI
Problem 23GI
Problem 24GI
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Problem 26GI
Problem 27GI
Problem 28GI
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Problem 3MC
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Problem 4RE
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Problem 1E
Problem 2E
Problem 3E
Problem 4E
Problem 5E
Problem 6E
Problem 7E
Problem 8E
Problem 9E
Problem 10E
Problem 11E
Problem 12E
Problem 13E
Problem 14E
Problem 15E
Problem 16E
Problem 17E
Problem 18E
Problem 19E
Problem 20E
Problem 21E
Problem 22E
Problem 1P
Problem 2P
Problem 3P
Problem 4P
Problem 5P
Problem 6P
Problem 7P
Problem 8P
Problem 9P
Problem 10P
Problem 11P
Problem 12P
Problem 13P
Problem 14P
Problem 15P
Problem 16P
Problem 17P
Problem 18P
Problem 1C
Problem 2C
Problem 3C
Problem 4C
Problem 5C
Problem 6C
Problem 7C
Problem 8C
Problem 10C
BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Non-Interest-Bearing Notes Payable On November 16, 2019, Clear Glass Company borrowed $20,000 from First American Bank by issuing a 90-day, non-interest-bearing note. The bank discounted this note at 12% and remitted the difference to Clear Glass.

Required:

  1. 1. Prepare the journal entries of Clear Glass to record the preceding information, the related calendar year-end adjusting entry, and payment of the note at maturity.
  2. 2. Show how the preceding items Would be reported on the December 31, 2019, balance sheet.
  3. 3. Next Level What is Clear Glass Company’s effective interest rate?

1.

To determine

Prepare journal entry to record the given transaction and also prepare the entry that is related to the related calendar year –end adjusting entry, and payment of the notes at maturity.

Explanation

Notes payable:

Notes Payable is a written promise to pay a certain amount on a future date, with the certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs.

DateAccount Titles and explanationDebit ($)Credit ($)
November  16, 2019Cash 19,4000 
 Discount  in notes payable ($20,000×12%×90360) 600 
      Notes payable 20,000
 (To record borrowing of money for a period of 90 day at an interest of 12%)  

Table (1)

  • Cash is an asset and there is an increase in the value of an asset. Hence debit the cash by $19,400.
  • Discount on notes payable is a contra liability and there is an increase in the value of liability. Hence, debit the discount on notes payable by $600.
  • Notes payable is a liability and there is an increase in the value of liability. Hence, credit the notes payable by $20,000.
DateAccount Titles and explanationDebit ($)Credit ($)
December 31, 2019Interest expense ($600×12) 300 
      Discount  in notes payable  300
 (To record the discount allowed on notes payable )  

Table (2)

  • Interest expense is a component of stockholder’s equity and there is an increase in the value of expense

2.

To determine

Show the manner by which the given items in the transaction will be reported in the balance sheet.

3.

To determine

Calculate the Company C’s effective interest rate.

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Ch-9 P-11GICh-9 P-12GICh-9 P-13GICh-9 P-14GICh-9 P-15GICh-9 P-16GICh-9 P-17GICh-9 P-18GICh-9 P-19GICh-9 P-20GICh-9 P-21GICh-9 P-22GICh-9 P-23GICh-9 P-24GICh-9 P-25GICh-9 P-26GICh-9 P-27GICh-9 P-28GICh-9 P-1MCCh-9 P-2MCCh-9 P-3MCCh-9 P-4MCCh-9 P-5MCCh-9 P-6MCCh-9 P-7MCCh-9 P-8MCCh-9 P-9MCCh-9 P-10MCCh-9 P-1RECh-9 P-2RECh-9 P-3RECh-9 P-4RECh-9 P-5RECh-9 P-6RECh-9 P-7RECh-9 P-8RECh-9 P-9RECh-9 P-10RECh-9 P-11RECh-9 P-1ECh-9 P-2ECh-9 P-3ECh-9 P-4ECh-9 P-5ECh-9 P-6ECh-9 P-7ECh-9 P-8ECh-9 P-9ECh-9 P-10ECh-9 P-11ECh-9 P-12ECh-9 P-13ECh-9 P-14ECh-9 P-15ECh-9 P-16ECh-9 P-17ECh-9 P-18ECh-9 P-19ECh-9 P-20ECh-9 P-21ECh-9 P-22ECh-9 P-1PCh-9 P-2PCh-9 P-3PCh-9 P-4PCh-9 P-5PCh-9 P-6PCh-9 P-7PCh-9 P-8PCh-9 P-9PCh-9 P-10PCh-9 P-11PCh-9 P-12PCh-9 P-13PCh-9 P-14PCh-9 P-15PCh-9 P-16PCh-9 P-17PCh-9 P-18PCh-9 P-1CCh-9 P-2CCh-9 P-3CCh-9 P-4CCh-9 P-5CCh-9 P-6CCh-9 P-7CCh-9 P-8CCh-9 P-10C

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