Question

Keesha Co, borrows $140,000 cash on December 1 of the current year by signing a 120-day, 11%, $140,000 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

Answer 1

1.

Date of borrowings = December 1

Maturity period= 130 days

Month	Days
December	30
January	31
February	28
March	31
Total	120

Maturity date of note = March 31

2.

	Total through maturity	Interest expense Current Year	Interest Expense Following Year
Principal	140,000
Rate (%)	11%
Time	120 days	30 days	90 days
Total interest	$5,063	$1,266	$3,797

4.

Transaction	Date	General journal	Debit	Credit
(a)	December 1	Cash	140,000
		note payable		140,000
		( To record issuance of note)

Transaction	Date	General journal	Debit	Credit
(b)	December 31	Interest expense	1,266
		Interest payable		1,266
		( To record accrual of interest)

Transaction	Date	General journal	Debit	Credit
(c)	March 31	Note payable	140,000
		Interest payable	1,266
		Interest expense	3,797
		Cash		145,063
		( To record payment of note at maturity)

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