Response to the following problem:
Assume that your team is in business and you must borrow $6,000 cash for short-term needs. You have been shopping banks for a loan, and you have the following two options.
A. Sign a $6,000, 90-day, 10% interest-bearing note dated June 1.
B. Sign a $6,000, 120-day, 8% interest-bearing note dated June 1.
Required:
1. Discuss these two options and determine the best choice. Ensure that all teammates concur with the decision and understand the rationale.
2. Each member of the team is to prepare one of the following journal entries.
a. Option A-at date of issuance.
b. Option B-at date of issuance.
c. Option A-at maturity date.
d. Option B-at maturity date.
3. In rotation, each member is to explain the entry he or she prepared in part 2 to the team. Ensure that all team members concur with and understand the entries.
4. Assume that the funds are borrowed on December 1 (instead of June 1) and your business operates on a calendar-year reporting period. Each member of the team is to prepare one of the following entries.
a. Option A-the year-end adjustment.
b. Option B-the year-end adjustment.
c. Option A-at maturity date. d. Option B-at maturity date.
5. In rotation, each member is to explain the entry he or she prepared in part 4 to the team. Ensure that all team members concur with and understand the entries.