Question

A business issued a 180-day, 8% note for $52,000 to a creditor on account. Illustrate the effects on the accounts and financial statements of recording (a) the issuance of the note and (b) the payment of the note at maturity, including interest.
If no account or activity is affected, select "No effect" from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts.

a. Illustrate the effects on the accounts and financial statements of recording the issuance of the note.

Statement of Cash Flows Balance Sheet Income Statement
Assets = Liabilities + Stockholders' Equity
Statement of Cash Flows Income Statement
No effect No effect
b. Illustrate the effects on the accounts and financial statements of recording the payment of the note at maturity, including interest. Assume a 360-day year. If required, round interest expense to the nearest whole number.

Statement of Cash Flows Balance Sheet Income Statement
Assets = Liabilities + Stockholders' Equity
Statement of Cash Flows Income Statement
Operating Interest expense

Answer 1

Answer:

Explanation:

Given that :

A business issued a 180-day, 8% note for $52,000 to a creditor on account.

Illustrate the effects on the accounts and financial statements of recording

(a) the issuance of the note and;

(b) the payment of the note at maturity, including interest.

(a)

We need to prepare the Note Payable and Balance sheet Entries in order to illustrate   the effects on the accounts and financial statements of recording the issuance of the note:

SO;

NOTE PAYABLE

Account Payable                  52000

Note Payable                                              52000

                               BALANCE SHEET

Access  =              Liabilities  +                     Stockholders      Income

                                                                     ' Equity                 Statement

No effect        Account Payable -52000    No effect             No effect

                       Notes Payable + 52000

                      NET EFFECT        = 0

(b)

Illustrate the effects on the accounts and financial statements of recording of the payment of the note at maturity, including interest.

NOTES PAYABLE

Account Payable                  52000

Interest expense                     2080

(52000×8%× 180/360)

Cash                                                                54080

                               BALANCE SHEET

Access  =              Liabilities  +                     Stockholders      Income

                                                                     ' Equity                 Statement

Cash = 54080   Notes Payable           Retained Earnings   Interest expense                    

                           =52000                     = 2080                      =2080