Answer:
The journal entry as of march 1 will be:
Debit Notes payable $27,000
Debit Interest payable $450
Debit Interest Expense $450
Credit Cash $27,900
Explanation:
payable amount = $27,000
Issued on 1st Nov
Term = 120 days
Maturity on 1st march.
Days from 1st Nov to 31st Dec = 60 days
Days from 1st Jan to 1st March = 60 days
Total 61 + 59 = 120 days
Interest expense from 1st Nov to 31st Dec
= 27000 x 10% x 60/360
= $ 450
This $450 has been debited as Interest expense and Credited as Interest payable on Year end Accrual.
Interest expense from 1st Jan to 1st March
= 27000 x 10% x 60/360
= $450
One maturity, 1st March, cash payment would include $27000 (amount of notes payable) + $900 (interest amount = 27000 x 10% x 120/360).
Total cash payment = $ 27,900
This cash payment of $27,900 will be credited.
Interest expense (1st jan to 1st march) of $450 will be debited.
Interest payable (1st Nov to 31st Dec) of $450 will be debited, and
Notes payable amount of $27,000 will also be debited.
Therefore , The journal entry as of march 1 will be:
Debit Notes payable $27,000
Debit Interest payable $450
Debit Interest Expense $450
Credit Cash $27,900
