Question

Tyrell Co. entered into the following transactions involving short-term liabilities. Year 1

Apr. 20: Purchased $40,250 of merchandise on credit from Locust, terms n/30.
May 19: Replaced the April 20 account payable to Locust with a 60-day, $40,250 note with interest at 8%.
Year 2
June 5: Paid the amount due on the note of May 19.

Answer 1

The question relates to business transactions involving short-term liabilities and accounting for interest on credit purchases. Tyrell Co.'s transactions detail the purchase of merchandise on credit, issuance of a note, and payment, including the calculation of associated interest.

Step-by-step explanation:

The question from the student pertains to transactions involving short-term liabilities in a business context. Specifically, it is about recording and paying off transactions on credit and their associated interest obligations within the accounting cycle of Tyrell Co.

On April 20th of Year 1, Tyrell Co. purchased merchandise on credit with terms n/30, implying it should be paid within 30 days. On May 19th, before payment was made, the company replaced this account payable with a 60-day note for the same amount ($40,250), which also carried an interest rate of 8%. Finally, on June 5th of Year 2, the company paid the total due on the note.

To calculate the interest due on May 19th, we use the formula: Interest = Principal × Rate × Time. The principal is the amount borrowed ($40,250), the rate is 8%, and the time is the proportion of the year the note is held for (in this case, 60 days out of 365).