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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)

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