on december 1, williams company borrowed $270,000 cash from a bank by signing a 90 - day, 7% note…
on december 1, williams company borrowed $270,000 cash from a bank by signing a 90 - day, 7% note payable.\na. prepare williams journal entry to record the issuance of the note payable.\nb. prepare williams journal entry to record the accrued interest due at december 31.\nc. prepare williams journal entry to record the payment of the note on march 1 of the next year.\ncomplete this question by entering your answers in the tabs below.\nrequired a\nrequired b\nrequired c\nprepare williams journal entry to record the issuance of the note payable.\nview transaction list\njournal entry worksheet\n1\nrecord the issuance of the note payable.\nnote: enter debits before credits.
Answer
Explanation:
Step1: Record issuance of note payable
Debit Cash $270,000; Credit Notes Payable $270,000
Step2: Calculate accrued interest for December
The annual interest rate is 7%. The time period from December 1 - December 31 is 31 days out of 360 (assuming a 360 - day year for simplicity in business calculations). Interest = Principal × Rate × Time. So, Interest = $270,000×0.07×\frac{31}{360} = $1,607.50. Debit Interest Expense $1,607.50; Credit Interest Payable $1,607.50
Step3: Calculate remaining interest
The remaining days from January 1 - March 1 is 90 - 31=59 days. Interest = $270,000×0.07×\frac{59}{360} = $3,027.50. On March 1, when paying the note, we debit Notes Payable $270,000, debit Interest Payable $1,607.50, debit Interest Expense $3,027.50, and credit Cash $270,000 + $1,607.50+ $3,027.50 = $274,635
Answer:
Required A:
| Account Title | Debit | Credit |
|---|---|---|
| Cash | $270,000 | |
| Notes Payable | $270,000 |
Required B:
| Account Title | Debit | Credit |
|---|---|---|
| Interest Expense | $1,607.50 | |
| Interest Payable | $1,607.50 |
Required C:
| Account Title | Debit | Credit |
|---|---|---|
| Notes Payable | $270,000 | |
| Interest Payable | $1,607.50 | |
| Interest Expense | $3,027.50 | |
| Cash | $274,635 |