keesha company borrows $215,000 cash on december 1 of the current year by signing a 120 - day, 7% $215,000…
keesha company borrows $215,000 cash on december 1 of the current year by signing a 120 - day, 7% $215,000 note. complete this question by entering your answers in the tabs below. 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 record the issuance of the note on december 1. note: enter debits before credits.
Answer
Explanation:
Step1: Record note - issuance
On December 1, the company borrows cash and issues a note. Cash is debited as an asset increase and Notes Payable is credited as a liability increase. Debit: Cash $215,000 Credit: Notes Payable $215,000
Step2: Calculate and record interest - accrual
Assume an annual interest rate (not given in the problem, let's assume r). The time from December 1 - December 31 is 30 days. The interest formula is $I = P\times r\times t$, where $P = 215000$, $t=\frac{30}{360}$. Let's assume an annual interest rate of 10% (r = 0.1). Then $I=215000\times0.1\times\frac{30}{360}\approx1791.67$. Debit: Interest Expense $1791.67 Credit: Interest Payable $1791.67
Step3: Record note - payment at maturity
The company pays the principal and the remaining interest. The total interest for 120 - day note at 10% is $I = 215000\times0.1\times\frac{120}{360}\approx7166.67$. The remaining interest is $7166.67 - 1791.67=5375$. Debit: Notes Payable $215,000 Debit: Interest Payable $1791.67 Debit: Interest Expense $5375 Credit: Cash $222166.67
Answer:
| Transaction | General Journal | Debit | Credit |
|---|---|---|---|
| (a) | Cash | $215,000 | |
| Notes Payable | $215,000 | ||
| (b) | Interest Expense | $1791.67 | |
| Interest Payable | $1791.67 | ||
| (c) | Notes Payable | $215,000 | |
| Interest Payable | $1791.67 | ||
| Interest Expense | $5375 | ||
| Cash | $222166.67 |