Question

The Eldorado Corporation's controller prepares adjusting entries only at the end of the reporting year. The following adjusting entries were prepared on December 31, 2021: 

Additional information:

 1. The company borrowed $684,000 on March 31, 2021. Principal and interest are due on March 31, 2022. This note is the company's only interest-bearing debt.

 2. Rent for the year on the company's office space is $48,000. The rent is paid in advance.

 3. On October 31, 2021, Eldorado lent money to a customer. The customer signed a note with principal and interest at 9.0% due in one year.

 Required:

 1. What is the interest rate on the company's note payable?

 2. The 2021 rent payment was made at the beginning of which month? (Do not round your intermediate calculation.)

 3. How much did Eldorado lend its customer on October 31? 

Answer 1

1.) Interest rate on the company's note payable: -

The interest showing in the above table is of 9 months, since we have taken loan in march end. Therefore, $61,560/- is of nine months data.

Therefore, full 12 months interest is: -

61560/9*12 = $82,080

$82,080 is of 12 months interest.

Therefore, Interest rate is = Interest amount/ principal amount *100

= 82080/684000*100

= 12% Per annum.

2.) The 2021 rent payment was made at the beginning of which month: -

Rent for the full year is $48,000

Rent per month = 48000/12 = $4000

Rent Expense whoich have been paid, showing in above table as on 31st december, 2021 is $40,000

Since, one month rent is $4000. Therefore, above $40,000 rent is of 10 months($4000*10).

Therefore, ten months interest have ben paid for the 2021 year.

Therefore, the month in which it would have been paid must be of at the beginning of march 2021.

(March to december) is total 10 months.

3.) Lending amount on oct 31.

Since, amount was lended on 31st oct, therefore, the interest receivable showing in above table is of 3 months from oct to dec.

oct to dec interest receivable amount is $1,650 and the rate of interest charged for full year is 9 %.

Therefore, 3 months rate of interest is 9/12*3 = 2.25%

Therrfore, Lending amount must have been = 1650/2.25% = $73,333.34