Question

Keesha Co. borrows $120,000 cash on November 1 of the current year by signing a 150-day, 11%, $120,000 note. 1. On what date does this note mature? 2. & 3. What is the amount of interest expense in the current year and the following year from this note? 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 Complete this question by entering your answers in the tabs below. Reg 1 Req 2 and 3 Reg 4 On what date does this note mature? (Assume that February has 28 days) On what date does this note mature?

Answer 1

Information Given -

Keesha Co. borrows $120000 cash on November 1 of the Current year by signing a 150-day, 11%, $120000 note.

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Answer - Part - (1) -

Calculation of Maturity date of Note

Month	No. of days	Cumulative days
November	(30-1) = 29	29
December	31	60 [29+31]
January	31	91 [60+31]
February	28	119 [91+28]
March	31	150 [119+31]
. The maturity date of note = March 31, 2020.

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Answer - Part - (2 & 3) -

Calculation of Amount of Interest Expense in the Current Year and the Following Year

	Total through maturity	Interest Expense Current Year	Interest Expense Following Year
Principal	$120000	$120000	$120000
Rate (%)	11%	11%	11%
Time	150/360	60/360	90/360
Total Interest	5500 [$120000*11%*150/360]	2200 [$120000*11%*60/360]	3300 [$120000*11%*90/360]

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Answer - Part - (4) -

Journal of Keesha Co.

Transaction	General Journal	Debit ($)	Credit ($)
(a)	Cash Notes payable	120000 -	- 120000
(b)	Interest expense [$120000*11%*60/360] Interest payable	2200 -	- 2200
(c)	Interest expense [$120000*11%*90/360] Interest payable Notes payable Cash	3300 2200 120000 -	- - - 125500