Keshena Co. borrows $195,000 cash on December 1, 2009, by signing a 120-day, 11%

Question

Keshena Co. borrows $195,000 cash on December 1, 2009, by signing a 120-day, 11% note with a face value of $195,000.

On what date does this note mature? (February of 2010 has 28 days.)

How much interest expense results from this note in 2009? (Assume a 360-day year. Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

How much interest expense results from this note in 2010? (Assume a 360-day year. Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

Prepare journal entries to record the following (Round your answers to the nearest dollar amount. Omit the "$" sign in your response)

-Issuance of the note

-Accrual of interest at the end of 2009

-Payment of the note at maturity

Explanation / Answer

1) The note will mature on march 31, 2010 (31 in December, 31 in january, 28 in February and the rest on march)

2) Interest of the note in 2009 = 195,000 * 11% * 30/360 = 1787.5$ = 1788

3) Interest of the note in 2010 = 195,000 * 11% * 90/360 = 5362.5$ = 5363

Journel entries
   Debit    Credit

Dec 1      Cash    195,000

   Note Payable          195,000

(to record amount borrowed)

Dec 31   interest expense 1788

   interest payable 1788

(accrual of interest in 2009)

march 31 Note payable      195,000

   interest payable    1788

   interest expense   5363

   Cash    202,151

(to record the payment of note)

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