Question

Keesha Co. borrows $110,000 cash on November 1 of the current year by signing a 180-day, 8%, $110,000 note.

1. On what date does this note mature?
2. & 3. What is the amount of interest expense in the current year and the following year from this note?
4. Prepare journal entries to record (a) issuance of the note, (b) accrual of interest on December 31, and (c) payment of the note at maturity.

Answer 1

1. Mature date = 30 April

2&3. Interest expense for current year = 110000*8%*60/365 = $1447

Interest expense for next year = 110000*8%*120/365 = $2893

4.

No.	Accounts	Debit	Credit
a.	Cash	110000
	Notes payable		110000
b.	Interest expense	1447
	Interest payable		1447
c	Notes payable	110000
	Interest payable	1147
	Interest expense	2893
	Cash		114040