Question

Problem 9-94A (Algorithmic) Note Computations and Entries (Straight line) On January 1, 2020, Sisek Company borrowed $716,000 with a 10-year, 9.75% note, interest payable semiannually on June 30 and December 31. Cash in the amount of $708,800 was received when the note was issued. Required: 1. Prepare the necessary journal entry at January 1, 2020. 2020 Jan. 1 Record issuance of notes at discount Accounting sumerie field 2. Prepare the necessary journal entry at June 30, 2020. If required, round amounts to the nearest dollar 2020 June 30 Record interest expense 3. Prepare the necessary Journal entry at December 31, 2020. If required, round amounts to the nearest dollar. 2020 December 31 Check My Work 5 more Check My Work uses remaining Previous Next > All work saved Email Instructor Save and Exit Submit Assignment for Grading 0 U O P

Answer 1

Solution Face value of Notes payable $716,000 Cash received on notes issued $708,800 Discount on issue of notes ($716,000- $708,800) $7,200 Period of notes payable Discount amortization each year ($7,200 Interest payment frequency 10 Years 10) $720 semi-annual Discount amortization on each interest date ($720/ 2) $360 Interest rate 9.75% Semi-annual Interest payment ($716,000 x 9.75% x 6/12) Semi-annual Interest expense ($34,905 + $360) $34,905 $35,265 Required 1: Journal Entry at January 2020 General Journal Debit Credit Date Jan. 01, 2020 Cash $708,800 Discount on notes payable $7,200 Notes Payable $716,000 (To record issuance of notes at discount) Required 2: Journal Entry at June 30, 2020 General Journal Debit Credit Date June 30, 2020 Interest Expense $35,265 Discount on notes payable $360 Cash $34,905 (To record interest expense) Required 3: Journal Entry at December 31, 2020 General Journal Debit Credit Date Interest Expense Dec. 31, 2020 $35,265 Discount on notes payable $360 Cash $34,905 (To record interest expense) Required 4: Computation of carrying amount of the note at the end of fifth year Total discount amortized through Year 1 to Year 5 ($720 x 5) $3,600 Unamortized discount at the end of Year 5 ($7,200- $3,600) $3,600 Carrying amount of the note at the end of 5th Year Face value of notes payable $716,000 Less: Unamortized discount on notes payable ($3,600) $712,400 Carrying amount at the end of 5th Year Carrying amount $712,400