Question

On November 7, 2017, Mura Company borrows $160,000 cash by signing a 90-day, 8% note payable with a face value of $160,000. (Use 360 days a year. Do not round your intermediate calculations.)1. Compute the accrued interest payable on December 31, 2017Principal xRate (%) xTime =InterestTotal Through Maturity 160,000 8 90/360 3,200Year end interest accrual 160,000 8 54/360 1,920Interest Recognized Feb. 5 160,00 8 4/360 1,2802. & 3. Prepare the journal entry to record the accrued interest expense at December 31, 2017, and payment of the note at maturityRecord the accrued interest expense.2) Dec. 31, 20173) Feb 05, 2018

Answer 1

Answer:

(1) $1,920

Explanation:

(1) Accrued interest payable on December 31, 2017:

= Principle × Rate × Time period

= $160,000 × 8% × (54 ÷ 360)

= $1,920

The Journal entries are as follows:

(2) On December 31, 2017

Interest Expense A/c Dr. $1,920

     To interest payable               $1,920

(To record the accrued interest expense)

(3) On February 05, 2018

Notes payable A/c     Dr. $160,000

Interest Expense A/c Dr. $1,920

Interest payable A/c  Dr. $1,280

          To cash A/c                             $163,200

(To record the payment of notes and interest)

Working notes:

cash:

= $160,000 + [$160,000 × 8% × (90 ÷ 360)]

= $1,280