Question
Notes and Interest McLaughlin Inc. operates with a June 30 year-end. During 2017, the following transactions occurred: January 1: Signed a one-year, 10% loan for
Notes and Interest
McLaughlin Inc. operates with a June 30 year-end. During 2017, the following transactions occurred:
- January 1: Signed a one-year, 10% loan for $35,000. Interest and principal are to be paid at maturity.
- 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.
- 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.
- March 1: Borrowed $210,000 on the line of credit.
- June 1: Repaid $140,000 on the line of credit plus accrued interest.
- June 30: Made all necessary adjusting entries.
- August 1: Repaid the non-interest-bearing note.
- September 1: Borrowed $280,000 on the line of credit.
- November 1: Issued a three-month, 8%, $16,800 note in payment of an overdue open account.
- 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 | fill in the blank 26dd10ffdf87fd0_5 | Accounts PayableCashInterest ExpenseNotes PayableNotes ReceivableNo Entry | fill in the blank 26dd10ffdf87fd0_7 | Accounts PayableCashInterest ExpenseInterest PayableNotes PayableNo Entry | fill in the blank 26dd10ffdf87fd0_9 | fill in the blank 26dd10ffdf87fd0_10 |
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 | fill in the blank e0ef0ffeafaa011_4 | fill in the blank e0ef0ffeafaa011_5 | EquipmentInterest ExpenseInterest PayableNotes PayableNotes ReceivableNo Entry | fill in the blank e0ef0ffeafaa011_7 | CashEquipmentEquipment ExpenseInterest ExpenseInterest ReceivableNo Entry | fill in the blank e0ef0ffeafaa011_9 | fill in the blank e0ef0ffeafaa011_10 | |||||
CashDiscount on Notes PayableEquipment ExpenseInterest ExpensePrepaid InterestNo Entry | fill in the blank e0ef0ffeafaa011_12 | Discount on Notes PayableEquipment ExpenseInterest ExpenseInterest PayableNotes ReceivableNo Entry | fill in the blank e0ef0ffeafaa011_14 | fill in the blank e0ef0ffeafaa011_15 | Discount on Notes PayableEquipment ExpenseInterest ExpenseInterest RevenueNotes PayableNo Entry | fill in the blank e0ef0ffeafaa011_17 | EquipmentEquipment ExpenseInterest ExpenseNotes PayablePrepaid InterestNo Entry | fill in the blank e0ef0ffeafaa011_19 | fill in the blank e0ef0ffeafaa011_20 |
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 | fill in the blank edfdeafec04dfeb_7 | 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 |
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