U5 Problems - Blanton Plastics, a household product...

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Blanton Plastics, a household product manufacturer, borrowed $14 million cash on October 1, 2011, to provide working capital for year-end production. Blanton issued a four- month, 12% promissory note to L&T Bank under a prearranged short-term line of credit. Interest on the note was payable at maturity. Each firm's fiscal period is the calendar year. Prepare the journal entries to record (a) the issuance of the note by Blanton Plastics and (b) L&T Bank's receivable on October 1, 2011. Prepare the journal entries by both firms to record all subsequent events related to the note through January 31, 2012. Suppose the face amount of the note was adjusted to include interest (a noninterest-bearing note) and 12% is the bank's stated discount rate. (a) Prepare the journal entries to record the issuance of the noninterest-bearing note by Blanton Plastics on October 1, 2011, the adjusting entry at December 31,
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and payment of the note at maturity. (b) What would be the effective interest rate? a. 1-Oct-11 Cash N otes payable $ 14,000,000 31-Jan-12 Interest expense $560,000 Notes payable Interest expense 420,000 (14m *12% * 3/12) Cash b. 1-Oct-11 Notes receivable C ash 31-Jan-12 Cash I nterest income 560,000 a. 1-Oct-11 Cash N otes payable $ 13,461,538 31-Jan-12 Interest expense $538,462 Notes payable Effective interest rate: 12.5% 1-Oct-11 Notes receivable The balance sheet at December 31, 2011, for Nevada Harverster Corporation includes the liabilities listed below: a. 11% bonds with a face amount of $40 million
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were issued for $40 million on October 31, 2000. The bonds mature on October 31, 2012 at a redemption price of $40 million. Market conditions are such that the call is not expected to be exercised. b. Management intended to refinance $6 million of its 10% notes that mature in May 2012. In early March, prior to the actual issuance of the 2011 financial statements, Nevada Harvester negotiated a line of credit with a commercial bank for up to $5 million any time
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U5 Problems - Blanton Plastics, a household product...

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