Question

Keesha Co. borrows $175,000 cash on November 1 of the current year by signing a 120-day, 10%, $175,000 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.

Date of borrowings = November 1

Maturity period= 120 days

Month	Days
November	29
December	31
January	31
February	28
March	1
Total	120

Maturity date of note = March 1

2.

	Total through maturity	Interest expense Current Year	Interest Expense Following Year
Principal	175,000
Rate (%)	10%
Time	120 days	60 days	60 days
Total interest	$5,833	$2,917	$2,916

4.

Transaction	Date	General journal	Debit	Credit
(a)	November 1	Cash	175,000
		note payable		175,000
		( To record issuance of note)

Transaction	Date	General journal	Debit	Credit
(b)	December 31	Interest expense	2,917
		Interest payable		2,917
		( To record accrual of interest)

Transaction	Date	General journal	Debit	Credit
(c)	March 1	Note payable	175,000
		Interest payable	2,917
		Interest expense	2,916
		Cash		180,833
		( To record payment of note at maturity)