Exercise 9-4 Interest-bearing notes payable with year-end adjustments P1 Check (

Question

Exercise 9-4 Interest-bearing notes payable with year-end adjustments P1 Check (2) $3,000 Keesha Co. borrows $200,000 cash on November 1, 2017, by signing a 90-day, 9% note with a face value of $200,000. 1. On what date does this note mature? 2. How much interest expense results from this note in 2017? (Assume a 360-day year.) 3. How much interest expense results from this note in 2018? (Assume a 360-day year.) 4. Prepare journal entries to record (a) issuance of the note, (b) accrual of interest at the end of 2017, and 3)$1,500 (c) payment of the note at maturity. (Assume no reversing entries are made.)

Explanation / Answer

1. As the note taken for 90days period on november 1,2017, the maturity date of note is 29th january 2018 [i.e: 90 days from november 1,2017 ends on 29th january 2018].

2. Interest expense results from this note in 2017 is as under:

=$200000*9/100*61/360 [for november and december in 2017 total 61 days]

=$3050

3. Interest expense results from this note in 2018 is as under:

As note matures on 29th january 2018 interest expense will be calculated for 29days i.e:

=$200000*9/100*29/360

=$1450.

4.Journal Entries:

a) Cash a/c 200000

To Note payable 200000

b) Interest expense 3050

To Interest payable 3050

c) Notes Payable 200000

Interest payable 4500

To Cash 204500

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