Sarah Braun Is the Owner of Sarah's Shameless Boutique Corp

question 64

Essay

Sarah Braun is the owner of Sarah's Shameless Boutique Corp. (SSBC),a newly incorporated company. Sarah believes that she has a great concept but does not have a lot of money to start the business. Sarah is fairly resourceful,though,and has been able to arrange the following:
1. On July 1,2014,SSBC provides a vendor with a $18,500 non-interest-bearing note due on July 1,2015 in exchange for furniture with a list price of $18,100. Sarah Braun guarantees the debt.
2. On August 1,2014,SSBC buys a photocopier listed for $2,600. The office supply store agrees to accept a $800 down payment and a $2,100,three-year note payable at $798 per year including interest at 7% with the first payment due on August 1,2015. The loan is secured by a lien on the photocopier.
3. On September 1,2014,SSBC borrows $15,000 from its bank for working capital purposes. The loan,plus interest at 12% per annum,is due on June 30,2015. SSBC grants the bank a security interest in its accounts receivables and inventory.
Unfortunately,SSBC's target audience is a bit more prudish than she anticipated and sales have been slow. While the company was able to retire the bank loan on the due date,it had insufficient cash to pay off the furniture loan. The vendor agrees to accept 2,000 common shares in SSBC in settlement of the obligation. Sarah believed that the shares are worth $20 each,but as this was the first time that SSBC had issued shares to anyone other than Sarah,a fair market price was not yet established.
SSBC's year-end is June 30. The company's banker has suggested that an appropriate market rate for SSBC is 12% per annum for loans that mature in one year or less and 14% for loans with longer maturities.
Required:
a. Prepare journal entries to record:
b. Briefly describe the note disclosure that would be required with respect to the foregoing liabilities.

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Definitions:

Small Muscles

Muscles associated with fine motor skills, typically found in the hands and fingers, allowing for movements such as grasping, writing, and buttoning.

Manipulation

The action of controlling or influencing a person or situation cleverly, unfairly, or unscrupulously, often without their awareness.

Plasticity

The quality of being easily shaped or molded, or the ability of the brain to reorganize itself by forming new neural connections.

Eight to Nine Years

A developmental phase in childhood characterized by growing independence, cognitive and physical skills development, and an increased understanding of the world.