Answer:
(a) The note matures on May 31.
(b) Interest expense recognition for the current year (December only) will be $2,062.5. The amount of interest for the following year of the notes is $12,375 - $2,062.5 = $10,312.5
(c) (a) Journals for the note issuance:
Debit Cash $275,000
Credit Note payable $275,000
<em>(To record the issuance of note)</em>
(c) (b) Journals for accrual of interest on December 31:
Debit Interest expense $2,062.5
Credit Interest payable $2,062.5
<em>(To record the interest payable on note)</em>
(c) (c) Journals for the payment of the note at maturity:
Debit Note payable $275,000
Debit Interest payable $12,375
Credit Cash $287,375
<em>(To record the payment of the note at maturity)</em>
Explanation:
(a) Counting fro, December 1, with 180-day period, the note matures on May 31.
(b) Note receivable 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 note is calculated as: Principal x Interest Rate x Time
In this case, the total interest expense is $275,000 x 9%/12 x 6 months = $12,375.
Monthly interest expense is therefore $12,375 / 6 months = $2,062.5.
Therefore, interest expense recognition for the current year (December only) will be $2,062.5. The amount of interest for the following year of the note is $12,375 - $2,062.5 = $10,312.5
