Entries for discounting notes payable
1. Obj. 1
Ramsey Company issues an $800,000, 45-day note to Buckner Company for merchandise inventory. Buckner discounts the note at 7%.
1. Journalize Ramsey’s entries to record:
1. the issuance of the note.
2. the payment of the note at maturity.
2. Journalize Buckner’s entries to record:
1. the receipt of the note.
2. the receipt of the payment of the note at maturity.
EX 11-4
Evaluating alternative notes
1. Obj. 1
A borrower has two alternatives for a loan: (1) issue a $360,000, 60-day, 5% note or (2) issue a $360,000, 60-day note that the creditor discounts at 5%.
1. Calculate the amount of the interest expense for each option.
2. Determine the proceeds received by the borrower in each situation.
3. Which alternative is more favorable to the borrower? Explain.