Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Target corporation is one of Americas largest general merchandise retailers. Each Christmas, Target builds up its inventory to meet the needs of Christmas shoppers. A large portion of of Christmas sales are on credit. As a results, Target often collects cash from the sales several months after Christmas. Assume that on November 1,2010, Target borrowed $6million cash from Metropolitan Bank and signed a promisory note that matures in six months. The Interest rate was 7.5 percent payable at maturity. The accounting period ends December 31.
Required:
1) Indicate the accounts, amounts, and effect (+ for increase,- for decrease, and NE for no effect) of the (a) issuance of the note on November 1, (B) Impact of the adjusting entry on December 31, 2010, and (c) the payment of the note and interest on April 30,2011 on the accounting equation. Use the following structure for your answer:
Date Assets = Liabilities + Stockholders ' Equity
2) If Target needs extra cash every Christmas season, should management borrow money on a long term basis to avoid negotiating a new short -term loan each year? Please explain your answer
3) Give the journal entry to record the note on November 1,2010
4) Give any adjusting entry required on December 31,2010
5) Give the journal entry to record payment of the note and interest on the maturity date, April 30, 2011, assuming that interest has not been recorded since December 31,2010.