Question

A business issued a 90-day, 5% note for $10,000 to a creditor on account. The company uses a 360-day year for interest calculations. Journalize the entries to record (a) the issuance of the note and (b) the payment of the note at maturity, including interest.
If an amount box does not require an entry, leave it blank or enter 0. When required, round your answers to the nearest dollar.

Answer 1

Answer: See explanation

Explanation:

a. The Journal entries to record the issuance of the note will be:

Debit Accounts payable $10000

Credit Notes payable $10000

(To record the issuance of note to creditor)

b. The journal entry to record thehe payment of the note at maturity, including interest will be:

Debit Notes payable $10000

Debit Interest expense $125

Credit Cash $10000 + $125 = $10125

(To record the payment on the note on maturity.

Note:

Interest expense = $10000 × 5% × 90/360

= $10000 × 0.05 × 0.25

= $125