MileHi Mountain Bikes Ltd. markets mountain-bike tours to clients vacationing in various locations in the mountains of British Columbia. On March 1, 2012, the company had a balance of $15,000 in Notes Payable for a six-month, 7% note issued to Eifert Corp. on October 1, with interest payable at maturity. Note that the company records adjusting entries only annually at its year end, June 30.
In preparation for the upcoming summer biking season, MileHi engaged in the following transactions:
Mar. 2 Purchased Mongoose bikes for use as rentals by borrowing $8,000 from the Western Bank for a three-month period; 8% interest is payable at maturity.
31 Paid the $15,000 note payable to Eifert Corp. (see opening balance), as well as any interest owed.
Apr. 1 Issued a nine-month, 6%, $25,000 note to Mountain Real Estate for the purchase of mountain property on which to build bike trails. Interest is payable at the first of each month.
May 1 Paid interest on the Mountain Real Estate note (see April 1 transaction).
2 Borrowed $18,000 from Western Bank for a four-month period. The funds will be used for working capital for the beginning of the season. 7% interest is payable at maturity.
June 1 Paid interest on the Mountain Real Estate note (see April 1 transaction).
2 Paid principal and interest to the Western Bank (see March 2 transaction).
29 Purchased a trailer for $5,000 to transport the bikes from one location to another. Paid $500 as a down payment and borrowed the remainder from the Western Bank for a 12-month period; 6% interest is payable quarterly, at the end of each quarter starting September 30.
30 Recorded accrued interest for the Mountain Real Estate note and Western Bank loan at MileHi's year end.
Instructions
(a) Record the above transactions.
(b) Open T accounts for the Interest Expense, Interest Payable, Notes Payable, and Bank Loans Payable accounts. Post the above entries.
(c) Assuming there is no other interest expense than that recorded in the transactions above, show the income statement presentation of the interest expense for the year ended June 30.
(d) Show the statement of financial position presentation of the notes, bank loans, and interest payable at June 30.