Many businesses borrow money during periods of increased business activity to fi

Question

Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Target Corporation is one of America's largest general merchandise retailers. Each Christmas, Target builds up its inventory to meet the needs of Christmas shoppers. A large portion of Christmas sales are on credit. As a result, Target often collects cash from the sales several months after Christmas. Assume that on November 1, 2010, Target borrowed $6,000,000 cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 7.5 percent payable at maturity. The accounting period ends December 31.

Give the journal entry to record payment of the note and interest on the maturity date, April 30, 2011, assuming that interest has not been recorded since December 31, 2010. (Omit the "$" sign in your response.)

_________

Explanation / Answer

Hi, Please find journal entry as follows: Note Payable Dr. 6000000 Interest Payable Dr. 75000 Interest Expense Dr.(6000000 * .075 * 4/12) 150000 Cash Cr. 6225000 Thanks, Aman

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