CC10-1 Accounting for Debt Financing [LO 10-2 expansion. With such a large expan

Question

CC10-1 Accounting for Debt Financing [LO 10-2 expansion. With such a large expansion, Nicole will need to finance some of it using debt. She signed a one-year the bank for $51,000 with a 6 percent interest rate. The note was issued October 1, 2014; Nicol e thinks that her business, Nicole's Getaway Spa (NGS), is doing really well and she is planning a large interest is payable semiannually; and the end of Nicole's accounting period is December31 Required: Prepare the journal entries required from the issuance of the note until its maturity on September 30, 2015, assuming that no entries are made other than at the end of the accounting period, when interest is payable, and when the note reaches its maturity. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.) View transaction list Journal entry worksheet 2 3 4 5 Record the borrowing of $51,000 Note: Enter debits before credits Date General Journal Debit Credit October 01, 2014

Explanation / Answer

Solution:

Journal Entries

Date

General Journal

Debit

Credit

Oct.1, 2014

Cash

$51,000

Notes Payable

$51,000

(Borrowed funds from bank by signing one year notes payable recorded)

Dec.31, 2014

Interest Expenses (51,000*6%*3/12)

$765

Interest Payable

$765

(Adjusting Entry to record the interest expenses for 3 months on notes payable)

Apr.1, 2015

Interest Payable

$765

Interest Expense (for 3 months from Jan 15 to March 15)

$765

Cash

$1,530

(Recording of semi annual interest payment)

Sept.30, 2015

Notes Payable

$51,000

Interest Expense (for 6 months from April 15 to Sept 15)

$1,530

Cash

$52,530

(Recording of repayment of notes payable including semi annual interest payment)

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Date

General Journal

Debit

Credit

Oct.1, 2014

Cash

$51,000

Notes Payable

$51,000

(Borrowed funds from bank by signing one year notes payable recorded)

Dec.31, 2014

Interest Expenses (51,000*6%*3/12)

$765

Interest Payable

$765

(Adjusting Entry to record the interest expenses for 3 months on notes payable)

Apr.1, 2015

Interest Payable

$765

Interest Expense (for 3 months from Jan 15 to March 15)

$765

Cash

$1,530

(Recording of semi annual interest payment)

Sept.30, 2015

Notes Payable

$51,000

Interest Expense (for 6 months from April 15 to Sept 15)

$1,530

Cash

$52,530

(Recording of repayment of notes payable including semi annual interest payment)

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