Notes payable—interest accrual and payment Proco had an account payable of $16,800 due to Shirmoo, Inc., one of its suppliers. The amount was due to be paid on January 31. Proco did not have enough cash on hand then to pay the amount due, so Proco’s treasurer called Shirmoo’s treasurer and agreed to sign a note payable for the amount due. The note was dated February 1, had an interest rate of 7% per annum, and was payable with interest on May 31.
Required:
Use the horizontal model to show the effects of each of these transactions and adjustments for Proco on
a. February 1, to show that the account payable had been changed to a note payable.
b. March 31, to accrue interest expense for February and March.
c. May 31, to record payment of the note and all of the interest due to Shirmoo.
(Note: As an alternative to using the horizontal model, write the journal entries to show each of these transactions and adjustments.)
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