E10-2 Recording a Note Payable through Its Time to Maturity [LO 10-2] Many busin

Question

E10-2 Recording a Note Payable through Its Time to Maturity [LO 10-2] 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, 2015, Target borrowed $7.2 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 9.50 percent payable at maturity. The accounting period ends December 31. Required 1,2&3. Complete the required journal entries to record the note on November 1, 2015, interest on the maturity date, April 30, 2016, assuming that interest has not been recorded since December 31, 2015. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet 2 3 Record the interest accrued on the note payable as of December 31, 2015 Note: Enter debits before credits Date General Journal Debit Credit December 31, 2015 Record entry Clear entry View general journal

Explanation / Answer

Ans. Journal Entry in the books of Target Corporation

Nov 1 2015                  Cash/Bank A/c Dr              $7200000

                                        To 9.50% Loan A/c                 $7200000

                     (Being $7.20 Million borroowed from metropolition Bank @9.50 ROI)

Dec 31 2015                    Profit and Loss A/c Dr                     $114000

                                         To Accured Interest on 9.5% Loan A/c $114000

                                ( Being interest expenses for two month recognized for 9.5% Loan for the year of 2015)

Apr 30 2016                        Profit $ Loss A/c Dr                                  $228000

                                                To Accured Interest on 9.5% Loan A/c    $228000

                                     (Being interest exp. recognized till the maturity for 4 month on 9.5% Loan)

Apr 30 2016                           9.5% Loan A/c Dr                         $7200000

                                            Accured Interest 9.5% Loan A/c Dr $342000

                                                  To Cash/Bank A/c                                    $7542000

                                 (Being 9.5% Loan is paid with accured interest on 9.5% for 6month)

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