Reference no: EM133144756

Question - Bailey Inc recently borrowed $10000 from potter Bank at14% interest. ailey Inc is a retail hardware store, selling home renovation goods and also renting construction equipment. Henry Potter decided to build a new home, he purchased goods and rented equipment from Bailey on June 1. 2022. Bailey inc issued a five year $300000 Note Receivable to Henry: interest of 7% is payable annually on May 31. Henry Potter's credit rating has declined in recent years and he now borrows money at10%.

A. prepare the June 1, 2022 journal entry for this transaction. Assume the goods were 50%of the total amount paid (cost of goods $60000) and equipment rental comprised the other 50%. Round all amounts to the nearest dollar.

B. Prepare the journal entry for the first and second interest payments to Bailey Inc pn May 31, 2022and May 31, 2024, using the effective interest method.

c. If Potter's credit rating was worse then stated above) desctibe the impact on Bailey's income statement and balance sheet accounts. Be specific but do not use calculations or numbers in the answer.