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natima [27]
3 years ago
5

C.S. Lewis Company had the following transactions involving notes payable.

Business
1 answer:
IceJOKER [234]3 years ago
8 0

Answer:

July 1, 2014:

Debit Cash                                         $50,000

Credit Note payable                          $50,000

<em>(To record note payable - 9-month, 8% note)</em>

Nov. 1, 2014:

Debit Cash                                         $60,000

Credit Note payable                          $60,000

<em>(To record note payable - 3-month, 6% note)</em>

Dec. 31, 2014:

Debit Interest expense                       $2,000

Credit Interest payable                       $2,000

<em>(To record 6 months interest payable on 9-month, 8% note)</em>

Debit Interest expense                          $600

Credit Interest payable                          $600

<em>(To record 2 months interest payable on 3-month, 6% note)</em>

Feb. 1, 2015:

Debit Note payable                            $60,000

Debit Interest payable                             $900

Credit Cash                                         $60,900

<em>(To record payment of principal & interest to Lyon County State Bank)</em>

Apr. 1, 2015:

Debit Note payable                           $50,000

Debit Interest payable                         $3,000

Credit Cash                                        $53,000

<em>(To record payment of principal & interest to First National Bank)</em>

Explanation:

Note is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

Interest expense on the note is calculated as: Principal x Interest Rate x Time

First National Bank Note:

The total interest expense is $50,000 x 8%/12 x 9 months = $3,000.

Monthly interest expense is therefore $3,000 / 9 months = $333.33.

Total interest as at December 31, 2014 (July 1 - Dec 31): $333.33 x 6 months = $2,000.

Lyon County State Bank Note:

The total interest expense is $60,000 x 6%/12 x 3 months = $900.

Monthly interest expense is therefore $900 / 3 months = $300.

Total interest as at December 31, 2014 (Nov. 1 - Dec 31): $300 x 2 months = $600.

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On January 1, 2012, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts on January 1, 2012:

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A) $ 77,000.

B) $ 79,000.

C) $125,000.

D) $127,000.

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The explanation of the answer is now provided as follows:

Total amortization of allocations for 2012 = ((Building fair value – Building book value) / 20 year) + ((Equipment fair value - Equipment book value) / 10 years) = (($268,000 - $240,000) / 20) + (($516,000 - $540,000) / 10) = -$1,000

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The amount that would appear on December 31, 2012 for equity in subsidiary earnings is $127,000. Therefore, the correct option is D) $127,000.

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