Question

Cosimo Enterprises issues a $260,000, 45-day, 5% note to Dixon Industries for merchandise inventory. Assume a 360-day year. For a compound transaction, if an amount box does not require an entry, leave it blank.
a) Journalize Cosimo Enterprises’ entries to record: the issuance of the note. the payment of the note at maturity.
b) Journalize Dixon Industries’ entries to record: the receipt of the note. the receipt of the payment of the note at maturity.

Answer 1

Answer:

Cosimo Enterprises

cash 260,000 debit

   note payable    260,000 credit

--to record issuance of the note--

note payable   260,000 debit

interest expense  1,625 debit

            cash                  261,625 credit

--to record honor of the note--

Dixon Industries

note receivables 260,000 debit

                 cash          260,000 credit

--to record reception of a note--

cash       261,625 debit

       note receivable 260,000 credit

        interest reenue      1,625 credit

--to record honor of the note--

Explanation:

principal x rate x time = interest

where time and rate must be express in the same metric.

In this case portion of a 360 year

260,000  x 0.05 x 45/360 = 1,625

At maturity we write-off the note account and reocgnize the interest expense/revenue depending on which side we are.

if we issued the noe, we are doin an interest expense.

If we have the note we receive the cash get interest revenue.