Question

1) A 1 1/2 -year loan in the amount of $100,000 with 12% interest was taken out on June 1, 2020.

a) Calculate the interest for December 31. (Hint: From June 1 - Dec 31 -- use your fingers)

Note Payable Entries

b) Prepare the journal entry for the issuance of the Note Payable.

c) Prepare the adjusting journal entry for interest expense – December 31, 2020

   (HINT: found amount in a)

d) Prepare the journal entry at maturity – November 30, 2021

1b) Prepare the following Journal entries for Bond Issuance

a) Issued $100,000 in bonds at face value.

b) Issued $100,000 in bonds for 98 (Discount)

c) Issued $100,000 in bonds for 101. (Premium)

Answer 1

a. Interest = $ 100,000 x 12 % x 7/12 = $ 7,000

	Date	Account Titles	Debit	Credit
			$	$
b.	June 1, 2020	Cash	100,000
		Notes Payable		100,000
c.	Dec 31, 2020	Interest Expense	7,000
		Interest Payable		7,000
d.	Nov 30, 2021	Interest Expense	11,000
		Interest Payable	7,000
		Note Payable	100,000
		Cash		118,000

Transaction	Account Titles	Debit	Credit
		$	$
a.	Cash	100,000
	Bonds Payable		100,000
b.	Cash	98,000
	Discount on Bonds Payable	2,000
	Bonds Payable		100,000
c.	Cash	101,000
	Premium on Bonds Payable		1,000
	Bonds Payable		100,000