Notes Payable on August 31, 2014, Kamloops Corp

question 149

Essay

Notes payable On August 31, 2014, Kamloops Corp.paid the Regal Bank part of an outstanding $300,000 long-term 10% note payable obtained one year earlier (August 31, 2013), by paying $180,000 plus $18,000 interest.In order to do this, Kamloops used $52,400 cash and signed a new one- year, zero-interest-bearing $160,000 note discounted at 9% by Regal (i.e.the bank deducted 9% from the $160,000). Instructions
a.Prepare the entry to record the refinancing.
b.Prepare the adjusting entry at December 31, 2014 in connection with the new zero-interest-
bearing note.

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Definitions:

Fixed Inspection Cost

A fixed cost associated with quality inspections that does not change with the level of production or services.

Machine-Hours

Machine-hours represent the total time that machinery is in operation, used as a basis for allocating machine-related costs to products.

Total Variable Cost

The sum of all costs that vary directly with the level of production, such as materials and labor costs.

Activity Level

The volume of production or the degree of service activity which directly affects the amount of various costs incurred.