Question

Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $40.3 million cash on October 1, 2021, to provide working capital for anticipated expansion. Precision signs a one-year, 8% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.

Problem 8-2A Part 1

Required:

1. Prepare the journal entries on October 1, 2021, to record the issuance of the note. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions. For example, $5.5 million should be entered as 5,500,000.)

2. Record the adjustments on December 31, 2021, for (a) Precision Castparts and (b) Midwest Bank. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions. For example, $5.5 million should be entered as 5,500,000.)

3. Prepare the journal entries on September 30, 2022, to record payment of the notes payable at maturity. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions. For example, $5.5 million should be entered as 5,500,000.)

Answer 1

1)
Date	Account Titles and Explanation	Debit (in $ )	Credit (in $ )
October 01,2021	Cash	$ 40,300,000
	Notes payable		$ 40,300,000
	(To record the issue of Note )
October 01,2021	Notes Receivable	$ 40,300,000
	Cash		$ 40,300,000
	(To record the acceptance of Note )
2)
Date	Account Titles and Explanation	Debit (in $ )	Credit (in $ )
December 31,2021	Interest expense ( $ 40,300,000 x 8% x 3/12)	$ 806,000
	Interest payable		$ 806,000
	(To record the Interest expense)
December 31,2021	Interest receivable	$ 806,000
	Interest revenue		$ 806,000
	(To record the Interest receivable)
3)
Date	Account Titles and Explanation	Debit (in $ )	Credit (in $ )
September 30, 2022	Interest expense ( $ 40,300,000 x 8% x 9/12)	$ 2,418,000
	Interest payable	$ 806,000
	Notes payable	$ 40,300,000
	Cash		$ 43,524,000
	(To record the payment of note )
September 30, 2022	Cash	$ 43,524,000
	Interest revenue		$ 2,418,000
	Interest receivable		$ 806,000
	Notes Receivable		$ 40,300,000
	(To record the Collection of note )