Question

E10-2 Recording a Note Payable through Its Time to Maturity [LO 10-2] Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. For example, Mitt builds up its inventory to meet the needs of retailers selling to Christmas shoppers. A large portion of Mitt's sales are on credit. As a result, Mitt often collects cash from its sales several months after Christmas. Assume on November 1, 2018, Mitt borrowed $6.5 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 6.00 percent payable at maturity. The accounting period ends December 31. Required: 1, 2 & 3. Prepare the required journal entries to record the note on November 1, 2018, the adjusting entry necessary on December 21, 2018, and the payment of interest and principal on the maturity date, April 30, 2019, assuming that interest has not been recorded since December 31, 2018. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Nov 01,2018	Cash	6500000
	Notes Payable		6500000
Dec 31,2018	Interest expense	65000		=6500000*6%*2/12
	Interest payable		65000
April 30,2019	Notes Payable	6500000
	Interest expense	130000		=6500000*6%*4/12
	Interest payable	65000
	Cash		6695000