Question
Novak Corp. was experiencing cash flow problems and was unable to pay its $104,400 account payable to Pina Corp. when it fell due on September
Novak Corp. was experiencing cash flow problems and was unable to pay its $104,400 account payable to Pina Corp. when it fell due on September 30, 2017. Pina agreed to substitute a one-year note for the open account. The following two options were presented to Novak by Pina Corp
Option 1: | A one-year note for $104,400 due September 30, 2018. Interest at a rate of 8% would be payable at maturity |
Option 2: | A one-year noninterest-bearing note for $112,752. The implied rate of interest is 8%. |
*Assume that Pina Corp. has a December 31 year end*
REQUIRED:
1. Assuming Novak Corp. chooses Option 1, prepare the entries required on Pina Corp.s books on September 30, 2017, December 31, 2017, and September 30, 2018.
2. Assuming Novak Corp. chooses Option 2, prepare the entries required on Pina Corp.s books on September 30, 2017, December 31, 2017, and September 30, 2018
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started