Question

On November 1, Vacation Destinations borrows $1.57 million and issues a six-month, 9% note payable. Interest is payable at maturity. Record the issuance of the note and the appropriate adjusting entry for interest expense at December 31, the end of the reporting period. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations. Enter your answers in dollars, not in millions. Round your answers to the nearest dollar amount.)

Answer 1

Answer:

(a) To Record the issuance of the note

Debit Cash $1.57 million

Credit Notes payable $1.57 million

(To record notes payable issuance)

(b) Adjusting entry for interest expense at December 31:

Debit Interest expense $23,550

Credit Interest payable $23,550

(To record interest expense on notes payable as at Dec 31)

Explanation:

Note payable is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

Interest expense on the notes is calculated as: Principal x Interest Rate x Time

In this case, the total interest expense is $1.57 million x 9%/12 x 6 months = $70,650.

Total interest expense to the Company as at December 31 is therefore $70,650 / 6 months x 2 months = $23,550.