Question

Exercise 11-4 Interest-bearing notes payable with year-end adjustments P1 Check (2) $3,000 (3) $1,500 Keesha Co, borrows $200,000 cash on November 1 of the current year by signing a 90-day, 9%. $200,000 note. 1. On what date does this note mature? 2. How much interest expense is recorded in the current year? (Assume a 360-day year.) 3. How much interest expense is recorded in the following year? (Assume a 360-day year.) 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.

1, 2, 3 and 4 please

Answer 1

1) Note will mature on 30th January (Nov 1 + 90 days).

2) Interest expense for current year will be for 2 months (i.e Nov & Dec ) = 200000*9%*60/360 = $3000

3) Interest expense in the following year = 200000*9%*30/360 = $1500

4) a)

Cash A/c.....Debit $200000

Notes payable ..... Credit $200000

b)

Interest expense A/c .....Debit $3000

Interest payable A/c...... Credit $3000

c)

Interest expense A/c...Debit $1500

Interest payable A/c ... Credit. $1500

Notes payable A/c ...Debit $200000

Interest payable A/c ...Debit $4500

Cash A/c....Credit. $204500

OR, we can pass combined entry as follows:

Notes payable A/c .... Debit $200000

Interest payable....Debit $3000

Interest expense....Debit $1500

Cash A/c ..... Credit $204500