Question: Journalizing Transactions Involving Notes Payable Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Target Corporation is one of America's largest general merchandise retailers. Each Christmas, Target builds up its inventory to meet the needs of Christmas shoppers. A large portion of Christmas sales are on credit. As a result, Target often collects cash from the sales several months after Christmas. Assume that on November 1, 2009, Target borrowed $6 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 7.5 percent payable at maturity. The accounting period ends December 31.
Required: 1. Give the journal entry to record the note on November 1, 2009.
2. Give any adjusting entry required on December 31, 2009.
3. Give the journal entry to record payment of the note and interest on the maturity date, April 30, 2010, assuming that interest has not been recorded since December 31, 2009.
4. If Target needs extra cash during every Christmas season, should management borrow money on a long-term basis to avoid the necessity of negotiating a new short-term loan each year? Why or why not?