Question

Trista and Co. borrowed $230,000 on December 1, 2020, for 90 days at 6% Interest by signing a note to buy jewellery Inventory. 1. On what date will this note mature? Maturity date 2. How much Interest expense is created by this note in 2020? (Use 365 days a year. Do not round Intermediate calculations and round the final answer to 2 decimal places.) Interest expense 3. How much Interest expense is created by this note in 2021? (Use 365 days a year. Do not round Intermediate calculations and round the final answer to 2 decimal places.) Interest expense 4. Prepare the journal entries on December 1, December 31 (Trista and Co.'s year-end), and the maturity date. (Use 365 days an year. Do not round Intermediate calculations and round the final answer to 2 decimal places.)

Answer 1

1) Maturity date = 01/12/2020 + 90 days = 30 days in December + 31 days in January + 28 days in February + 1 day in March

Maturity date = March 01. 2021.

2) Interest expense in 2020 = $230,000 *6% * 30 days / 360 days = $1,150.

3) Interest expense in 2021 = $230,000 * 6% * 60 days / 360 days = $2,300.

Journal entries.

Date	Account Details and explanation	Debit	Credit
Dec 01, 2020	Cash	$230,000
	Notes Payable		$230,000
	(Being notes payable issued)
Dec 31, 2020	Interest Expense	$1,150
	Interest Payable		$1,150
	(Interest expense for year end recorded)
March 01, 2021	Interest Expense	$2,300
	Interest Payable	$1,150
	Notes Payable	$230,000
	Cash		$233,450