Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Federal Way, Incorporated, is one of America's most prestigious retailers. Each Christmas season, Federal Way builds up its inventory to meet the needs of Christmas shoppers. A large portion of these Christmas sales are on credit. As a result, Federal Way often collects cash from the sales several months after Christmas. Assume that on November 1 of this year, Federal Way borrowed $4.8 million cash from Third Fifth Bank to meet short-term obligations. Federal Way signed an interest-bearing note and promised to repay the $4.8 million in six months. The annual interest rate was 11 percent. All interest will accrue and be paid when the note is due in six months. Federal Way's accounting period ends December 31. Required: Note: For all requirements, If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars not in millions (i.e., 1,000,000 not 1.0). 1. Prepare the journal entry to record the note on November 1. 2. Prepare any adjusting entry required at the end of the annual accounting period on December 31. 3. Prepare the journal entry to record payment of the note and interest on the maturity date, April 30.
Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Federal Way, Incorporated, is one of America's most prestigious retailers. Each Christmas season, Federal Way builds up its inventory to meet the needs of Christmas shoppers. A large portion of these Christmas sales are on credit. As a result, Federal Way often collects cash from the sales several months after Christmas. Assume that on November 1 of this year, Federal Way borrowed $4.8 million cash from Third Fifth Bank to meet short-term obligations. Federal Way signed an interest-bearing note and promised to repay the $4.8 million in six months. The annual interest rate was 11 percent. All interest will accrue and be paid when the note is due in six months. Federal Way's accounting period ends December 31. Required: Note: For all requirements, If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars not in millions (i.e., 1,000,000 not 1.0). 1. Prepare the journal entry to record the note on November 1. 2. Prepare any adjusting entry required at the end of the annual accounting period on December 31. 3. Prepare the journal entry to record payment of the note and interest on the maturity date, April 30.
Chapter7: Budgeting
Section: Chapter Questions
Problem 10EA: Nonnas Re-Appliance Store collects 55% of its accounts receivable in the month of sale and 40% in...
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Transcribed Image Text:Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable.
Federal Way, Incorporated, is one of America's most prestigious retailers. Each Christmas season, Federal Way builds up its inventory to
meet the needs of Christmas shoppers. A large portion of these Christmas sales are on credit. As a result, Federal Way often collects
cash from the sales several months after Christmas. Assume that on November 1 of this year, Federal Way borrowed $4.8 million cash
from Third Fifth Bank to meet short-term obligations. Federal Way signed an interest-bearing note and promised to repay the $4.8
million in six months. The annual interest rate was 11 percent. All interest will accrue and be paid when the note is due in six months.
Federal Way's accounting period ends December 31.
Required:
Note: For all requirements, If no entry is required for a transaction/event, select "No journal entry required" in the first account
field. Enter your answers in whole dollars not in millions (i.e., 1,000,000 not 1.0).
1. Prepare the journal entry to record the note on November 1.
2. Prepare any adjusting entry required at the end of the annual accounting period on December 31.
3. Prepare the journal entry to record payment of the note and interest on the maturity date, April 30.
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