Required:

Determine the amount of interest expense that should be accrued in a year-end adjusting entry under each assumption:

Answer:

(1.)	Interest rate	Fiscal Year-End
	9%	December 31
	$700,000 x 9% x 6/12 = $31,500
(2.)	Interest rate	Fiscal Year-End
	8%	August 31
	$700,000 x 6% x 2/12 = $7,000
(3.)	Interest rate	Fiscal Year-End
	12%	October 31
	$700,000 x 12% x 4/12 = $28,000

Learning Objective: 3 Level of Learning: 3

114. On November 1, 2006, Ziegler Products issued a $200,000, 9-month, noninterest-bearing note to the bank. Interest was discounted at a 12% discount rate.

Required:

1. Prepare the appropriate journal entry by Ziegler to record the issuance of the note.

2. Determine the effective interest rate.

3. Suppose the note had been structured as a 12% note with interest and principal payable at maturity. Prepare the appropriate journal entry to record the issuance of the note by Ziegler.

4. Prepare the appropriate journal entry on December 31, 2006, to accrue interest expense on the note described in (3.) for the 2006 financial statements.

Answer:

(1.)	Issuance of the note (November 1, 2006)
	Cash	182,000
	Discount on notes payable	18,000
	($200,000 x 12% x 9/12)
	Note payable		200,000
(2.)	Effective interest rate
	($18,000 ÷ $182,000) x 12/9 = 13.2%
(3.)	Issuance of the note (November 1, 2006)
	Cash	200,000
	Note payable		200,000
(4.)	Adjusting entry (December 31, 2006)
	Interest expense ($200,000 x 12% x 2/12)	4,000
	Interest payable		4,000

Learning Objective: 2 Level of Learning: 3

115. The following selected transactions relate to liabilities of Chicago Glass Corporation (Chicago) for 2006. Chicago's fiscal year ends on December 31.

1. On January 15, Chicago received $7,000 from Henry Construction toward the purchase of $66,000 of plate glass to be delivered on February 6.

2. On February 3, Chicago received $6,700 of refundable deposits relating to containers used to transport glass components.

3. On February 6, Chicago delivered the plate glass to Henry Construction and received the balance of the purchase price.

4. First quarter credit sales totaled $700,000. The state sales tax rate is 4% and the local sales tax rate is 2%.