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Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Nordstrom, Inc., is one of America's most prestigious retailers.
Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Nordstrom, Inc., is one of America's most prestigious retailers. Each Christmas season, Nordstrom builds up its inventory to meet the needs of Christmas shoppers. A large portion of these Christmas sales are on credit. As a result, Nordstrom often collects cash from he sales several months after Christmas. Assume that on November 1 of this year, Nordstrom borrowed $4.8 million cash from Bank of America to meet short-term obligations. Nordstrom signed an interest-bearing note and promised to repay the $4.8 million in six nonths. The annual interest rate was 8%. All interest will accrue and be paid when the note is due in six months. Nordstrom's accounting period ends December 31. Required: I. Determine the financial statement effects for each of the following: (a) the issuance of the note on November 1, (b) the impact of the adjusting entry at the end of the accounting period, and (c) payment of the note and interest on April 30. Indicate the effects (e.g., cash For -) using the following schedule. (If no impact on the accounting equation leave cells blank. Indicate the direction of the effect by selecting "+" for increase, "-" for decrease from the drop down menu.) Date Assets Liabilities Stockholders' Equity November 1 Note payable + December 31 Interest payable + Interest expense April 30 Cash Interest expense Interest payable Note payable
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