Answer:
Explanation:
The journal entries are shown below:
(1) Cash A/c Dr $21,000,000
To Notes payable A/c $21,000,000
(Being note is issued for cash)
(2) Interest expense A/c Dr $787,500
To Interest payable A/c $787,500
(Being accrued interest adjusted)
The interest payable would be
= Principal × rate of interest × number of months ÷ (total number of months in a year)
= $21,000,000 × 9% × (5 months ÷ 12 months )
= $787,500
The 5 months is calculated from August 1 to December 31
(3) Interest expense A/c Dr $157,500
Interest payable A/c Dr $787,500
Notes payable A/c Dr $21,000,000
To Cash A/c $21,945,000
(Being cash is paid on maturity)
The interest expense is computed below:
= Principal × rate of interest × number of months ÷ (total number of months in a year)
= $21,000,000 × 9% × (1 month ÷ 12 month)
= $157,500
