Question

On November 1, Bahama Cruise Lines borrows $2.3 million and issues a six-month, 9% note payable. Interest is payable at maturity. Record the issuance of the note and the appropriate adjustment for interest expense at December 31, the end of the reporting period. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions (i.e. 5 should be entered as 5,000,000).)

Answer 1

Answer:

Nov 1    Cash                            $2,300,000 Dr

                  Notes Payable              $2300,000 Cr

Dec 31  Interest Expense        $34,500 Dr

                   Interest Payable         $34,500 Cr

Explanation:

The interest is payable at maturity that is at the start of May as the nite is for six months. However, at the end of the period the adjusting entry will be made. On 31 December the 2 months interest is accrued. The expense relates to this period so will be recorded as an expense and as a payable.

The 9% is the annual rate.

the annual Interets is 2300000*0.09 = 207000

So, the 2 month interest will be = 207000 * 2/12 = 34500