Question

The company issued a $100,000, 6 month, 5% promissory note on October 1, 2019 to National Bank with interest paid at the end of each month. a) What account(s) and amount(s) will be shown on the 2019 income statement? Account Name Account Name b) What account(s), if any, would be shown on the December 31, 2019 balance sheer? Do not include cash. Account Name Account Name

Answer 1

Answer

• Notes:

--Notes Payable = $ 100,000 is a balance sheet item [a liability]

--Interest is paid monthly, by the end of each month.

--Annual interest for 12 months= $ 100,000 x 5% = $ 5,000

• Requirement ‘a’

Income Statement of 2019 will show Interest expense for 3 months, from 1 Oct 2019 to 31 Dec 2019

3 month Interest expense = $ 5000 x 3/12= $ 1,250

Account Name	Interest Expense	$                 1,250
Account Name

• Requirement ‘b’

Balance Sheet will include the principal amount of Notes Payable.

Account Name	Notes Payable	$             100,000
Account Name