Answer: The appropriate entry for the note payable as at 31 December is $758,300.
Explanation: The interest expense on the note is calculated as: $1,000,000 *9/12 *3/12 months = $22,500. The amount paid for the first of the quarterly payment was $264,200. Therefore, note principal repayment can be derived by subtracting the interes accrued from the actual payment, that is, $264,200 minus $22,500 = $241,700. To get the principal note balance, you would subtract $241,700 from $1,000,000, leaving a balance of $758,300.
The appropriate adjusting entries would be:
On 30 September: Debit Cash $1,000,000, Credit Note payable (current liabilities) $1,000,000
Monthly interest accrual: Dr Interest expense $7,500 Credit Interest payable $7,500
On first payment of the quarter, the entity would raise these entries: Dr Interes payable $22,500, Dr note payable (current liabilities) $241,700 Credit Cash $264,200.
