Question

Moss County Bank agrees to lend the Ivanhoe Company $365000 on January 1. Ivanhoe Company signs a $365000, 6%, 9-month note. The entry made by Ivanhoe Company on January 1 to record the proceeds and issuance of the note is

Answer 1

Answer:

Ivanhoe Company on January 1 would record the proceeds and issuance of the note as follows:

Debit Cash $365,000

Credit Notes payable $365,000

(To recognize notes payable to Moss County Bank)

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 to Ivanhoe Company is $365,000 x 6%/12 x 9 months = $16,425.

Monthly interest expense to the Company over the 9-month period is therefore $16,425 / 9 months = $1,825.