Question

On October 1, Eder Fabrication borrowed $66 million and issued a nine-month, 8% promissory note. Interest was payable at maturity. Prepare the journal entry for the issuance of the note and the appropriate adjusting entry for the note 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 whole dollars.)

Answer 1

Answer:

Explanation:

The adjusting entries are shown below:

1. Cash A/c Dr $66,000,000

        To Short term notes payable A/c $66,000,000

(Being issue of short term note payable is recorded)

2. Interest expense A/c Dr $1,320,000

        To Interest payable A/c                    $1,320,000

(Being interest is recorded)

The interest amount is computed below:

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

= $66,000,000 × 8% × ( 3 months ÷ 12 months)

= $1,320,000

The 3 months is calculated from October 1 to December 31