Question

On September 1, 2021, Triton Entertainment borrowed $24,000,000 cash to fund a new Fun Park. The loan was made by Nevada Bank. Triton issued a 9-month, 12% promissory note. Interest was payable at maturity. Triton's fiscal period is the calendar year (12/31). Required: 1. Prepare the journal entry for the issuance of the note by Triton. 2. Prepare the appropriate adjusting entry for the note by Triton on December 31, 2021. 3. Prepare the journal entry for the payment of the note at maturity.

Answer 1

Answer:

1.

September 1, 2021     Cash                          $24,000,000 Dr

                                       Notes Payable             $24,000,000 Cr        

2.

December 31, 2021     Interest Expense         $960,000 Dr

                                           Interest Payable           $960,000 Cr

3.

May 30, 2022       Interest Expense         $1,200,000 Dr

                                     Interest Payable           $1,200,000 Cr

June 1, 2022       Notes Payable                   $24,000,000 Dr

                            Interest Payable                 $2,160,000 Dr

                                    Cash                                     $26,160,000 Cr

Explanation:

1.

The issuance of note against cash results in a debit to cash and a credit to a liability in account for notes payable.

2.

The adjusting entry will be made in accordance to accrual principle that matches the revenues and expenses relating to a certain period and record them in their respective period. The interest on note for 4 months from September to December belongs to 2021 and will be recorded as an expense and a payable on 31 december.

The interest expense for 4 months is = 24000000 * 0.12 * 4/12 = $960000

3.

The interest for the remaining 5 months will be recorded on the last day of note on May 30.

The interest for 5 months is = 24000000 * 0.12 * 5/12 = $1200000

On June 1, the note and the interest payable on note both will be paid and will be debited to close them from the books and cash will be credited.