Current Liabilities

Bon Nebo Co. sold 17,500 annual subscriptions of Bjorn for $60 during December 20Y5. These new subscribers will receive monthly issues, beginning in January 20Y6. In addition, the business had taxable income of $660,000 during the first calendar quarter of 20Y6. The federal tax rate is 38%. A quarterly tax payment will be made on April 12, 20Y6.

Prepare the Current liabilities section of the balance sheet for Bon Nebo Co. on March 31, 20Y6.

Bon Nebo Co.
Current Liabilities Section of Balance Sheet
March 31, 20Y6
Current liabilities:
Advances on magazine subscriptions	$
Federal income taxes payable
Total current liabilities	$

Entries for notes payable

Bennett Enterprises issues a $420,000, 60-day, 6%, note to Spectrum Industries for merchandise inventory.

Assume a 360-day year. If required, round your answers to the nearest dollar.If an amount box does not require an entry, leave it blank.

a. Journalize Bennett Enterprises entries to record:

1. the issuance of the note.
2. the payment of the note at maturity.

1.
2.

b. Journalize Spectrum Industries entries to record:

1. the receipt of the note.
2. the receipt of the payment of the note at maturity.

1.
2.

Evaluating Alternative Notes

A borrower has two alternatives for a loan: (1) issue a $660,000, 120-day, 9% note or (2) issue a $660,000, 120-day note that the creditor discounts at 9%. Assume a 360-day year.

a. Calculate the amount of the interest expense for each option. $ for each alternative. ___________

b. Determine the proceeds received by the borrower in each situation.

(1) $660,000, 120-day, 9% interest-bearing note	$
(2) $660,000, 120-day note discounted at 9%	$

c. Alternative _________ is more favorable to the borrower because the borrower __________ .

Fixed Asset Purchases with Note

On June 30, Collins Management Company purchased land for $560,000 and a building for $840,000, paying $700,000 cash and issuing a 6% note for the balance, secured by a mortgage on the property. The terms of the note provide for 20 semiannual payments of $35,000 on the principal plus the interest accrued from the date of the preceding payment.

If an amount box does not require an entry, leave it blank.

a. Journalize the entry to record the transaction on June 30.

June 30

b. Journalize the entry to record the payment of the first installment on December 31.

Dec. 31

c. Journalize the entry to record the payment of the second installment the following June 30.

June 30