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Chapter 13: Question 3BE (page 692)

BE13-3 (L01) Takemoto Corporation borrowed \(60,000 on November 1, 2017, by signing a \)61,350, 3-month, zero-interest bearing note. Prepare Takemoto’s November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry.

Short Answer

Expert verified

The amount of discount on notes payable is $1,350.

Step by step solution

01

Meaning of Notes Payable

Notes payable is a negotiable instrument. It is used by borrowers to borrow money by promising the lender to pay the borrowed amount on a specific date. The nature of notes payable as a current liability or non-current liability depends on the maturity period.

02

Journal Entries

Date

Accounts and Explanation

Debit $

Credit $

November 1, 2017

Cash

$60,000

Discount on Notes Payable

$1,350

Notes Payable

$61,350

December 31, 2017

Interest Expenses

$900

Discount on Notes Payable ($1,350 x 2/3)

$900

February 1, 2018

Interest expenses

$450

Discount on Notes Payable

$450

February 1, 2018

Notes Payable

$61,350

Cash

$61,350

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Most popular questions from this chapter

In determining the amount of a provision, a company using IFRS should generally measure:

(a) Using the midpoint of the range between the lowest possible loss and the highest possible loss.

(b) Using the minimum amount of the loss in the range.

(c) Using the best estimate of the amount of the loss expected to occur.

(d) Using the maximum amount of the loss in the range.

Question: What factors must be considered in determining whether or not to record a liability for pending litigation? For threatened litigation?

Distinguish between a determinable current liability and a contingent liability. Give two examples of each type.

BE13-5 (L01) Dillons Corporation made credit sales of \(30,000 which are subject to 6% sales tax. The corporation also made cash sales which totalled \)20,670 including the 6% sales tax. (a) Prepare the entry to record Dillons’ credit sales. (b) Prepare the entry to record Dillons’ cash sales.

EXCEL (Equity Securities Entries and Disclosures) Parnevik Company has the following securities in its

investment portfolio on December 31, 2017 (all securities were purchased in 2017): (1) 3,000 shares of Anderson Co. common

stock which cost \(58,500, (2) 10,000 shares of Munter Ltd. common stock which cost \)580,000, and (3) 6,000 shares of King Company

preferred stock which cost \(255,000. The Fair Value Adjustment account shows a credit of \)10,100 at the end of 2017.

In 2018, Parnevik completed the following securities transactions.

1. On January 15, sold 3,000 shares of Anderson’s common stock at \(22 per share less fees of \)2,150.

2. On April 17, purchased 1,000 shares of Castle’s common stock at \(33.50 per share plus fees of \)1,980.

On December 31, 2018, the market prices per share of these securities were Munter \(61, King \)40, and Castle $29. In addition, the

accounting supervisor of Parnevik told you that, even though all these securities have readily determinable fair values, Parnevik

will not actively trade these securities because the top management intends to hold them for more than one year.

Instructions

(a) Prepare the entry for the security sale on January 15, 2018.

(b) Prepare the journal entry to record the security purchase on April 17, 2018.

(c) Compute the unrealized gains or losses and prepare the adjusting entry for Parnevik on December 31, 2018.

(d) How should the unrealized gains or losses be reported on Parnevik’s income statement and balance sheet?
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