Answer:
(a) To Record the issuance of the note
Debit Cash $1.57 million
Credit Notes payable $1.57 million
<em>(To record notes payable issuance)</em>
(b) Adjusting entry for interest expense at December 31:
Debit Interest expense $23,550
Credit Interest payable $23,550
<em>(To record interest expense on notes payable as at Dec 31)</em>
Explanation:
Note payable is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.
Interest expense on the notes is calculated as: Principal x Interest Rate x Time
In this case, the total interest expense is $1.57 million x 9%/12 x 6 months = $70,650.
Total interest expense to the Company as at December 31 is therefore $70,650 / 6 months x 2 months = $23,550.
