eBook

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.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

CashEquipmentEquipment ExpenseInterest ExpenseNotes ReceivableNo EntryEquipment

fill in the blank e0ef0ffeafaa011_2

EquipmentInterest ExpenseInterest RevenueNotes PayableNotes ReceivableNo EntryNotes Payable

fill in the blank e0ef0ffeafaa011_4

fill in the blank e0ef0ffeafaa011_5

EquipmentInterest ExpenseInterest PayableNotes PayableNotes ReceivableNo EntryNo Entry

fill in the blank e0ef0ffeafaa011_7

CashEquipmentEquipment ExpenseInterest ExpenseInterest ReceivableNo EntryNo Entry

fill in the blank e0ef0ffeafaa011_9

fill in the blank e0ef0ffeafaa011_10

CashDiscount on Notes PayableEquipment ExpenseInterest ExpensePrepaid InterestNo EntryNo Entry

fill in the blank e0ef0ffeafaa011_12

Discount on Notes PayableEquipment ExpenseInterest ExpenseInterest PayableNotes ReceivableNo EntryDiscount on Notes Payable

fill in the blank e0ef0ffeafaa011_14

fill in the blank e0ef0ffeafaa011_15

Discount on Notes PayableEquipment ExpenseInterest ExpenseInterest RevenueNotes PayableNo EntryNo Entry

fill in the blank e0ef0ffeafaa011_17

EquipmentEquipment ExpenseInterest ExpenseNotes PayablePrepaid InterestNo EntryNo Entry

fill in the blank e0ef0ffeafaa011_19

fill in the blank e0ef0ffeafaa011_20

Feedback

Partially correct

The adjustment to amortize the discount on the note:

Activity	OperatingInvestingFinancingInvesting and FinancingOperating
Accounts	Discount on Notes Payable Increase, Interest Expense IncreaseDiscount on Notes Payable Increase, Interest Expense DecreaseDiscount on Notes Payable Decrease, Interest Expense IncreaseDiscount on Notes Payable Decrease, Interest Expense DecreaseDiscount on Notes Payable Decrease, Interest Expense Increase
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income StatementBalance 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

Accounts PayableCashInterest ExpenseInterest PayableNotes PayableNo EntryNo Entry

fill in the blank c168e806a054012_2

CashDiscount on Notes PayableInterest ExpenseInterest PayableNotes PayableNo EntryDiscount on Notes Payable

fill in the blank c168e806a054012_4

fill in the blank c168e806a054012_5

CashDiscount on Notes PayableInterest ExpenseInterest PayableNotes PayableNo EntryNo Entry

2. As of December 31, which notes are outstanding? How much interest is due on each? Do not round intermediate calculations. If required, round your final answers to the nearest dollar.

Outstanding Debt	Principal Balance	Interest Payable
Line of credit	$fill in the blank 26673200bfde067_1	$fill in the blank 26673200bfde067_2
8% Note	$fill in the blank 26673200bfde067_3	$fill in the blank 26673200bfde067_4

Feedback line of credit is not 70,000 or 280,000 that was wrong.