Question

Apr. 20 Purchased $35,500 of merchandise on credit from Locust, terms n/30. May 19 Replaced the April 20 account payable to Locust with a 90-day, 8%, $35,000 note payable along with paying $500 in cash. July 8 Borrowed $63,000 cash from NBR Bank by signing a 120-day, 10%, $63,000 note payable. __?__ Paid the amount due on the note to Locust at the maturity date. __?__ Paid the amount due on the note to NBR Bank at the maturity date. Nov. 28 Borrowed $21,000 cash from Fargo Bank by signing a 60-day, 7%, $21,000 note payable. Dec. 31 Recorded an adjusting entry for accrued interest on the note to Fargo Bank.

Answer 1

The subject question revolves around the process of acquiring loans, the impact on banks' balance sheets, and the calculation of interest due at loan maturity. The scenario includes an example of Singleton Bank lending money and how it affects the reserves of First National, who must keep a percentage as required reserves.

Step-by-step explanation:

Understanding Loans and Interest

The scenarios described involve the acquisition of loans and the calculation of interest due on these loans. In the case of Singleton Bank lending to Hank's Auto Supply, the loan of $9 million is an asset to Singleton Bank which stands to earn interest income. When Hank's Auto Supply deposits this check with First National, that bank's deposits and reserves increase by $9 million. However, pursuant to banking regulations, First National must keep 10% as required reserves but can lend out the remaining 90%.

When it comes to calculating the amount due on a loan at the maturity date, one must account for the principal amount of the loan as well as the interest accrued over the period of the loan. For example, to pay off a million-dollar loan at a fixed monthly payment, one might end up paying more than twice the original loan amount over 30 years. The calculation of these amounts often involves understanding the terms of the loan, such as the annual percentage rate (APR) and the duration of the loan.