AFM 101 Classroom Solutions - Nov 14th Part A

AFM 101 Classroom Solutions - Nov 14th Part A - →-SE...

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E10–6 Req. 1 November 1, 2011: Cash (+A) ................................................................................. 4,500,000 Note payable (+L) ................................................................ 4,500,000 Borrowed on 6-month, 8%, note payable. Req. 2 December 31, 2011 (end of the fiscal year): Interest expense (+E - SE) ..................................................... 60,000 Interest payable (+L) ............................................................ 60,000 Adjusting entry for 2 months’ accrued interest ($4,500,000 x 8% x 2/12 = $60,000). Req. 3 April 30, 2012 (maturity date): Note payable ( - L) ..................................................................... 4,500,000 Interest payable (per above) ( - L) ............................................. 60,000
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Unformatted text preview: →-SE) 120,000 Cash (-A). ............................................................................. 4,680,000 Paid note plus interest at maturity. Req. 4 It is doubtful that long-term borrowing would be appropriate in this situation. After the Christmas season, Sears will collect cash from its credit sales. At this point, it does not need borrowed funds. It would be costly to pay interest on a loan that was not needed. It might be possible to borrow for a longer term at a lower interest rate and invest idle cash to offset the interest charges. Sears should explore this possibility with its bank but in most cases it would be better to borrow on a short-term basis to meet short-term needs....
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