Question

Exercise 9-4 Interest-bearing notes payable with year-end adjustments LO P1 Keesha Co. borrows $195,000 cash on November 1 of the current year by signing a 150-day, 8%, $195,000 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 = November 1

Maturity period= 150 days

Month	Days
November	29
December	31
January	31
February	28
March	31
Total	150

Maturity date of note = March 31

2.

	Total through maturity	Interest expense Current Year	Interest Expense Following Year
Principal	195,000
Rate (%)	8%
Time	150 days	60 days	90 days
Total interest	$6,500	$2,600	$3,900

4.

Transaction	Date	General journal	Debit	Credit
(a)	November 1	Cash	195,000
		note payable		195,000
		( To record issuance of note)

Transaction	Date	General journal	Debit	Credit
(b)	December 31	Interest expense	2,600
		Interest payable		2,600
		( To record accrual of interest)

Transaction	Date	General journal	Debit	Credit
(c)	March 31	Note payable	195,000
		Interest payable	2,600
		Interest expense	3,900
		Cash		201,500
		( To record payment of note at maturity)

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