Question
1. On April 1, 2014, Mattson Industries purchased new equipment at a cost of $325,000. The useful life of this equipment was estimated at 5
1.
On April 1, 2014, Mattson Industries purchased new equipment at a cost of $325,000. The useful life of this equipment was estimated at 5 years, with a residual value of $25,000. Depreciation is calculated beginning on April 1, 2014. Assume that the equipment is sold at the end of December 2016, for $176,250 cash. Prepare the journal entry to record the sale of the equipment under the straight-line method.
2.
During the fiscal year ended December 31, 2014, Swanson Corporation engaged in the following transactions involving notes payable:
Aug. 6 Borrowed $12,000 from Maple Grove Bank, signing a 45-day, 12% note payable.
Sept. 16 Purchased office equipment from Seawald Equipment. The invoice amount was $18,000, and Seawald agreed to accept, as full payment a 10%, three-month note for the invoice amount.
Sept. 20 Paid Maple Grove Bank the note plus accrued interest.
Nov. 1 Borrowed $250,000 from Mike Swanson, a major corporate stockholder. The corporation issued Swanson a $250,000, 15%, 90-day note payable.
Dec. 1 Purchased merchandise inventory in the amount of $5,000 from Gathman Corporation. Gathman accepted a 3-month, 14% note as full settlement of the purchase.
Dec. 16 The $18,000 note payable to Seawald Equipment matures today. Swanson paid the accrued interest on this note and issued a new 30-day, 16% note payable in the amount of $18,000 to replace the note that matured.
Prepare journal entries to record each of the above transactions. Use a 360-day year in making the interest calculations. Assume that each month has 30 days.
Prepare the adjusting entry needed at December 31 to accrue interest.
Provide a possible explanation why the new 30-day note payable to Seawald Equipment pays 16% interest instead of the 10% rate charged on the September 16 note.
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