What type of transaction is the issuance of a note payable?
When a company issues a note, it receives an asset (cash). This increases the amount of cash
that the company has available to it. At the same time, a claim (note payable) is created. This
is a liability because it is held by an entity that is outside the company. Because an asset is
created or increased, the transaction is an asset source.
LO: LO 1
Wrayan Corp. borrowed $150,000 from the First National Bank on August 1, 2009. The note
carried a 6% annual rate of interest and required repayment of principal plus interest on January
31, 2010. What amount of interest expense would be recorded as of December 31, 2009?
Interest is calculated by using the following equation: Principal x Interest Rate x Time =
Interest. Interest is owed for periods in which the borrower has the use of the funds
borrowed. In this example, the time period is 5 months because the funds were borrowed on
August 1, and the period ended December 31. This is 5 months out of 12. Therefore, Interest
owed for the period August to December of 2009 is $3,750 (150,000 x 6% x 5/12).
LO: LO 1
The Little Ducky Toy Store sells toys designed for infants and toddlers in a major Midwestern
city where the sales tax is 11.25%. Sales tax is required to be collected on all sales. Little Ducky
experienced the following events in 2011:
Sales, all cash, were $635,000
Cost of Goods Sold was $486,000
Recorded Operating Expense of $35,500
Given the information above, what is 1) sales tax expense, and 2) income for 2011?
$ 0 / $113,000
$71,437.50 / $77,562.50
$71,437.50 / $42,062.50
$ 0 / $113,500
In most governmental jurisdictions, sales taxes are levied on sales that are made to end users.
While sales taxes are collected at the time of sale, they are usually not paid to the government