keesha company borrows $120,000 cash on november 1 of the current year by signing a 180 - day, 7%, $120,000…

keesha company borrows $120,000 cash on november 1 of the current year by signing a 180 - day, 7%, $120,000 note. complete this question by entering your answers in the tabs below. req 1 req 2 and 3 req 4 prepare journal entries to record (a) issuance of the note, (b) accrual of interest on december 31, and (c) payment of the note at maturity. note: use 360 days a year. do not round intermediate calculations. view transaction list journal entry worksheet 1 2 3 record the issuance of the note on november 1.

Answer

Explanation:

Step1: Record issuance of note

On November 1, the company borrows cash and issues a note. Cash is debited (increase in asset) and Notes Payable is credited (increase in liability).

Date	Account Titles and Explanation	Debit ($)	Credit ($)
Nov 1	Cash	120000
	Notes Payable		120000

Step2: Calculate and record interest accrual

The time from November 1 - December 31 is 61 days. The interest formula is $I = P\times r\times t$, where $P=$120000$, $r = 7%=0.07$ and $t=\frac{61}{360}$. $I=120000\times0.07\times\frac{61}{360}\approx1423.33$ The interest expense is debited (increase in expense) and Interest Payable is credited (increase in liability).

Date	Account Titles and Explanation	Debit ($)	Credit ($)
Dec 31	Interest Expense	1423.33
	Interest Payable		1423.33

Step3: Record payment of note at maturity

The total amount to be paid at maturity is the principal plus the total interest. The total interest for 180 - day note is $I = 120000\times0.07\times\frac{180}{360}=4200$. We already accrued $1423.33$, so the remaining interest expense is $4200 - 1423.33 = 2776.67$. Notes Payable is debited (decrease in liability), Interest Payable is debited (decrease in liability) and Interest Expense is debited (increase in expense), and Cash is credited (decrease in asset).

Date	Account Titles and Explanation	Debit ($)	Credit ($)
Maturity date	Notes Payable	120000
	Interest Payable	1423.33
	Interest Expense	2776.67
	Cash		124200

Answer:

(a)

Date	Account Titles and Explanation	Debit ($)	Credit ($)
Nov 1	Cash	120000
	Notes Payable		120000
(b)
Date	Account Titles and Explanation	Debit ($)	Credit ($)
----	----	----	----
Dec 31	Interest Expense	1423.33
	Interest Payable		1423.33
(c)
Date	Account Titles and Explanation	Debit ($)	Credit ($)
----	----	----	----
Maturity date	Notes Payable	120000
	Interest Payable	1423.33
	Interest Expense	2776.67
	Cash		124200