Question

Notes Payable Rogers Machinery Company borrowed $330,000 on February 1, with a 6-month, 10%, interest-bearing note. Required: 1. Record the borrowing transaction. Feb. 1 (Record issuance of note payable) 2. Record the repayment transaction. If an amount box does not require an entry, leave it blank. Aug. 1 (Record payment of note and interest)

Answer 1

Answer:

1.

February 1  Cash                          $330000 Dr

                        Notes Payable           $330000 Cr

2.

July 31  Interest expense            $16500 Dr

                     Interest payable           $16500 Cr

Aug 1  Notes Payable       $330000 Dr

           Interest Payable    $16500 Dr

                     Cash                      $346500 Cr

Explanation:

1.

The issuance of note payable against cash will require the cash account to be debited and notes payable, which is a liability, to be credited.

2.

The interest on note payable for 6 months will become due and will be recorded on 31 July. The interest expense and interest payable accounts will be used.

The interest for 6 months is = 330000 * 0.1 * 6/12 = $16500

On 1 August, when the note and interest payable is paid, the cash will be credited by the sum of notes payable and interest payable accounts.