Question

Keesha Co. borrows $200,000 cash on November 1, 2018, by signing a 90-day, 9% note with a face value of $200,000. 1. On what date does this note mature? 2. & 3. What is the amount of interest expense in 2018 and 2019 from this note? 4. Prepare journal entries to record (a) issuance of the note, (b) accrual of interest at the end of 2018, and (c) payment of the note at maturity. (Assume no reversing entries are made.)

Answer 1

Answer:

Explanation:

1. The maturing date of note will be 30 January 2019

( 29 days in November + 31 Days in December and 30 Days in January)

2. The interest expense would  be

On 2018:

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

= $200,000 × 9% × (60 days ÷ 360 days)

= $3,000

( 29 days in November + 31 Days in December)

3. On 2019:

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

= $200,000 × 9% × (30 days ÷ 360 days)

= $1,500

(30 Days in January)

We assume 360 days in a year.

4. (A) Cash A/c Dr  $200,000

              To Notes payable A/c   $200,000

(Being note is issued for cash)

(B) Interest expense A/c Dr $3,000

        To Interest payable A/c  $3,000

(Being accrued interest adjusted)

(C) Interest expense A/c Dr           $1,500

    Interest payable A/c Dr            $3,000

    Notes payable A/c Dr               $200,000

            To Cash A/c                                              $204,500\

(Being cash is paid on maturity)