Question

Keesha Co. borrows $200,000 cash on November 1, 2015, by signing a 90-day, 9% note with a face value of $200,000.

Answer 1

Answer:

Explanation:

1. The maturing date of note will be 30 January 2016

( 29 days in November + 31 Days in December and 30 Days in January)

2. The interest expense would be

On 2015:

= Principal × rate of interest × number of days ÷ (total number of days in a year)  

= $200,000 × 9% × (60 days ÷ 360 days)

= $3,000

( 29 days in November + 31 Days in December)

3. On 2016:

= Principal × rate of interest × number of days ÷ (total number of days in a year)  

= $200,000 × 9% × (30 days ÷ 360 days)

= $1,500

(30 Days in January)

We assume 360 days in a year.  

4. (A) Cash A/c Dr $200,000  

            To Notes payable A/c $200,000  

(Being note is issued for cash)

(B) Interest expense A/c Dr $3,000

                 To Interest payable A/c $3,000

(Being accrued interest adjusted)

(C) Interest expense A/c Dr $1,500

    Interest payable A/c Dr $3,000

    Notes payable A/c Dr $200,000

                  To Cash A/c $204,500

(Being cash is paid on maturity)