eBook

Notes and Interest

McLaughlin Inc. operates with a June 30 year-end. During 2017, the following transactions occurred:

1. January 1: Signed a one-year, 10% loan for $35,000. Interest and principal are to be paid at maturity.
2. January 10: Signed a line of credit with Little Local Bank to establish a $560,000 line of credit. Interest of 9% will be charged on all borrowed funds.
3. February 1: Issued a $28,000 non-interest-bearing, six-month note to pay for a new machine. Interest on the note, at 12%, was deducted in advance.
4. March 1: Borrowed $210,000 on the line of credit.
5. June 1: Repaid $140,000 on the line of credit plus accrued interest.
6. June 30: Made all necessary adjusting entries.
7. August 1: Repaid the non-interest-bearing note.
8. September 1: Borrowed $280,000 on the line of credit.
9. November 1: Issued a three-month, 8%, $16,800 note in payment of an overdue open account.
10. December 31: Repaid the one-year loan [from transaction (a)] plus accrued interest.

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank or enter 0. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

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Liabilities

+

Equity

Revenues

Expenses

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Income

CashInterest ExpenseInterest PayableNotes PayableNotes ReceivableNo Entry

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Accounts PayableCashDiscount on Notes PayableInterest PayableNotes ReceivableNo Entry

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CashInterest ExpenseInterest RevenueNotes PayableNotes ReceivableNo Entry

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Accounts PayableAccounts ReceivableCashInterest PayableNotes PayableNo Entry

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Accounts PayableCashInterest PayableInterest ReceivableNotes PayableNo Entry

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CashInterest ExpenseInterest PayableNotes PayableNotes ReceivableNo Entry

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CashInterest ExpenseInterest ReceivableNotes PayableNotes ReceivableNo Entry

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Accounts PayableCashDiscount on Notes PayableInterest PayableNotes PayableNo Entry

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j. December 31: Repaid the one-year loan [from transaction (a)] plus accrued interest.

Activity	OperatingInvestingFinancingInvesting and Financing
Accounts	Cash Increase, Notes Payable Decrease, Interest Payable Decrease, Interest Expense IncreaseCash Increase, Notes Payable Decrease, Interest Payable Decrease, Interest Expense DecreaseCash Decrease, Notes Payable Decrease, Interest Payable Decrease, Interest Expense IncreaseCash Decrease, Notes Payable Decrease, Interest Payable Decrease, Interest Expense Decrease
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income Statement

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank or enter 0. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Accounts PayableCashInterest ExpenseInterest PayableNotes PayableNo Entry

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Accounts PayableCashInterest ExpenseInterest PayableNotes ReceivableNo Entry

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Accounts PayableCashGain on NoteInterest PayableNotes ReceivableNo Entry

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Accounts PayableAccounts ReceivableCashInterest ExpenseLoss on NoteNo Entry

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Accounts PayableInterest ExpenseInterest ReceivableNotes PayableNotes ReceivableNo Entry

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Accounts PayableCashDiscount on Notes PayableNotes PayableNotes ReceivableNo Entry

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Accounts PayableCashInterest ExpenseInterest PayableLoss on NoteNo Entry

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Accounts PayableCashGain on NoteInterest PayableNotes ReceivableNo Entry

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2. As of December 31, which notes are outstanding? How much interest is due on each? Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

Outstanding Debt	Principal Balance	Interest Payable
Line of credit	$fill in the blank 26673200bfde067_1	$fill in the blank 26673200bfde067_2
8% Note	$fill in the blank 26673200bfde067_3	$fill in the blank 26673200bfde067_4