Question

Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. For example, Mattel builds up its inventory to meet the needs of retailers selling to Christmas shoppers. A large portion of Mattel's sales are on credit. As a result, Mattel often collects cash from its sales several months after Christmas. Assume on November 1, 2018, Mattel borrowed $6 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 8.0 percent payable at maturity. The accounting period ends December 31.

Required:

1. 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.)

Answer 1

Journal entry

Date	account and explanation	Debit	Credit
Nov 1	Cash	6000000
	Notes payable		6000000
	(To record borrow)
Dec 31	Interest expense (6000000*8%*2/12)	80000
	Interest payable		80000
	(To record accrued interest)
Apr 30	Notes payable	6000000
	Interest payable	80000
	Interest expense	160000
	Cash		6240000
	(To record payment)