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 $7.7 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 7.50 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, interest 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.) View transotion list EXi 1 Record the borrowing of $7,700,000. 2 Record the interest accrued on the note payable as of December 31, 2018. 3 Record the repayment of the note plus interest on the maturity date. Credit Note: journal entry has been entered Record entry View general journal Clear entry

Answer 1

Journal entries
Date	General Journal			Debit	Credit
November 1, 2018	Cash			$ 7,700,000
	Notes Payable				$ 7,700,000
	(To record signed notes payable.)
December 31, 2018	Interest Expense			$        96,250
	Interest Payable				$        96,250
	(To record accrued interest expense.) (Nov to Dec = 2 Months) (7700000*7.5%*2/12)
April 30, 2019	Notes Payable			$ 7,700,000
	Interest Payable			$        96,250
	Interest Expense			$      192,500
	Cash				$ 7,988,750
	(To record Payment made toward Notes payable.) (Jan to Apr = 4 Months) (Interest expense = 7700000*7.5%*4/12)

Cash paid for principal of notes			$ 7,700,000
Cash paid for interest (7700000*7.5%*6/12)			$      288,750
Total cash paid on maturity date			$ 7,988,750