Many businesses borrow money duning periods of increased business activity to fi

Question

Many businesses borrow money duning 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 S6.1 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 8.50 percent payable at maturity. The accounting period ends December 31 Required: 1,2&3. Complete the required joumal entries to record the note on November 1, 2015, interest on the matunty date, Apni 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 transactionlevent, select "No Journal Entry Required" in the first account field.) 1 Record the borrowing of $6,100,000 Record the interest accrued on the note payable as of December 31, 2015. 2 3 Record the repayment of the note plus interest on the maturity date. Credit Note : = journal entry has been entered Reoord entry Clear entry Viow general journal

Explanation / Answer

Journal Entries :-

Working Note :-

1). Interest amount for 2 Months = ($6100000 * 8.5% * 2/12) = $86417

2) Interest Expense from Jan to April = ($6100000 * 8.5% * 4/12) = $172833

Date Particulars Debit ($) Credit ($) Nov. 1 Cash A/c Dr. 6100000 To Notes Payables A/c 6100000 (To record Amount Borrowed at 8.5% Interest Rate for 6 Months) Dec. 31 Interest Expenses A/c Dr. (Working Note 1) 86417 To Interest Payables A/c 86417 (To record Adjusting Entry of accrued Interest Amount for 2 Months) April 30 Notes Payable A/c Dr. 6100000 Interest Payable A/c Dr. 86417 Interest Expense A/c Dr. 172833 To Cash A/c 6359250 ( To Record Interest Paid and Notes Payable at Maturity Date)

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