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.

Required:

1. Identify and analyze the effect of these transactions. When calculating interest use full months instead of days. Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

a. January 1: Signed a one-year, 10% loan for $35,000. Interest and principal are to be paid at maturity.

Activity	OperatingInvestingFinancing
Accounts	Cash Increase, Notes Payable IncreaseCash Increase, Notes Payable DecreaseCash Decrease, Notes Payable IncreaseCash Decrease, Notes Payable 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 PayableNotes PayableNotes ReceivableNo Entry

fill in the blank 26dd10ffdf87fd0_2

Accounts PayableCashInterest ReceivableNotes PayableNotes ReceivableNo Entry

fill in the blank 26dd10ffdf87fd0_4

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Accounts PayableCashInterest ExpenseNotes PayableNotes ReceivableNo Entry

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Accounts PayableCashInterest ExpenseInterest PayableNotes PayableNo Entry

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b. 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.

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 PayableNotes PayableNotes ReceivableNo Entry

fill in the blank 23769806df84f9b_2

Accounts PayableCashInterest PayableNotes PayableNotes ReceivableNo Entry

fill in the blank 23769806df84f9b_4

fill in the blank 23769806df84f9b_5

Accounts PayableCashInterest RevenueNotes PayableNotes ReceivableNo Entry

fill in the blank 23769806df84f9b_7

Accounts PayableCashInterest ExpenseInterest PayableNotes PayableNo Entry

fill in the blank 23769806df84f9b_9

fill in the blank 23769806df84f9b_10

c. 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.

Activity	OperatingInvestingFinancingInvesting and Financing
Accounts	Equipment Increase, Discount on Notes Payable Increase, Notes Payable IncreaseEquipment Increase, Discount on Notes Payable Increase, Notes Payable DecreaseEquipment Decrease, Discount on Notes Payable Increase, Notes Payable IncreaseEquipment Decrease, Discount on Notes Payable Increase, Notes Payable 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. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

CashEquipmentEquipment ExpenseInterest ExpenseNotes ReceivableNo Entry

fill in the blank e0ef0ffeafaa011_2

EquipmentInterest ExpenseInterest RevenueNotes PayableNotes ReceivableNo Entry

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EquipmentInterest ExpenseInterest PayableNotes PayableNotes ReceivableNo Entry

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CashEquipmentEquipment ExpenseInterest ExpenseInterest ReceivableNo Entry

fill in the blank e0ef0ffeafaa011_9

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CashDiscount on Notes PayableEquipment ExpenseInterest ExpensePrepaid InterestNo Entry

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Discount on Notes PayableEquipment ExpenseInterest ExpenseInterest PayableNotes ReceivableNo Entry

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Discount on Notes PayableEquipment ExpenseInterest ExpenseInterest RevenueNotes PayableNo Entry

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EquipmentEquipment ExpenseInterest ExpenseNotes PayablePrepaid InterestNo Entry

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d. March 1: Borrowed $210,000 on the line of credit.

Activity	OperatingInvestingFinancingInvesting and Financing
Accounts	Cash Increase, Notes Payable IncreaseCash Increase, Notes Payable DecreaseCash Decrease, Notes Payable IncreaseCash Decrease, Notes Payable 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 PayableNotes PayableNotes ReceivableNo Entry

fill in the blank edfdeafec04dfeb_2

CashInterest ExpenseInterest ReceivableNotes PayableNotes ReceivableNo Entry

fill in the blank edfdeafec04dfeb_4

fill in the blank edfdeafec04dfeb_5

CashInterest ExpenseInterest PayableNotes PayableNotes ReceivableNo Entry

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Accounts PayableCashInterest PayableNotes PayableNotes ReceivableNo Entry

fill in the blank edfdeafec04dfeb_9

fill in the blank edfdeafec04dfeb_10

e. June 1: Repaid $140,000 on the line of credit plus accrued interest.

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