Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Shipley Ltd. was experiencing a cash flow problem and was unable to pay its $35,000 account payable to Brewer Company. Both companies have a December

image text in transcribed
Shipley Ltd. was experiencing a cash flow problem and was unable to pay its $35,000 account payable to Brewer Company. Both companies have a December 31st year end. When the receivable fell due on January 1, 2017, Brewer agreed to accept a note from Shipley on January 1 to replace the account receivable. Brewer offered three payment options to Shipley: Option No.1 Brewer would accept a two-year, $35,000 note from Shipley with a stated coupon rate of 8%. Interest on the note is to be paid monthly by Shipley on the last day of each month. Option No.2 Brewer would accept a two-year non interest-bearing note for $40,824 from Shipley. The market rate of interest on January 1, 2017 for this type of note is 8%. The maturity date of the note is December 31, 2018. Option No. 3 Brewer would accept a non interest-bearing note from Shipley which called for six equal annual payments of $8,043, including the principal and interest due, to be made on December 31 of cach year. The market rate of interest on January 1, 2017 for this type of note is 5%. Required: (You may use either the gross method or the net method) Prepare the journal entries on the books of Brewer Company on January 1 2017, July 31, (a) 2017, and December 31, 2018 assuming Shipley chooses Option 1. (6 marks) Prepare the journal entries on the books of Brewer Company on January 1, 2017, December 31, 2017, and December 31, 2018 assuming Shipley chooses Option 2 (7 marks) (b) Prepare the journal entry on the books of Brewer Company on December 31, 2017. (4 marks) (c)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Control Systems Performance Measurement Evaluation And Incentives

Authors: Kenneth Merchant, Wim Van Der Stede

3rd Edition

0273737619, 978-0273737612

More Books

Students also viewed these Accounting questions

Question

Explain the concept of equal employment opportunity.

Answered: 1 week ago

Question

Explain the various job analysis methods.

Answered: 1 week ago

Question

Describe the components of a job description.

Answered: 1 week ago