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 1,283. 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 Record the repayment of the note plus interest on the maturity date Note: Enter debits before credits Date General Journal Debit Credit April 30, 2016 Record entry Clear entry View general journal

Explanation / Answer

Solution:

Journal Entry

Date

General Journal

Debit

Credit

April.30, 2016

Notes Payable

$7,200,000

Interest Payable (7,200,000*9.5%*2/12)

$114,000

Interest Expense (7,200,000*9.5%*4/12)

$228,000

Cash

$7,542,000

Note: Company will record 2 months interest expense on Dec 31, 2015. So on Dec 31, 2015 the following entry would be passed:

Debit --- Interest Expense $114,000

Credit --- Interest Payable $114,000

So on maturity company will pay 4 months interest as well as the interest payable for 2 months.

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Date

General Journal

Debit

Credit

April.30, 2016

Notes Payable

$7,200,000

Interest Payable (7,200,000*9.5%*2/12)

$114,000

Interest Expense (7,200,000*9.5%*4/12)

$228,000

Cash

$7,542,000

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