Question

You company borrows $80,000 cash on December 1, by signing a 120 day, 8% note, with a face value of $80,000. Answer the following questions and record the transactions noted.

Record the issuance of the note on December 1.

Calculate and record the journal entry for interest required on December 31st.

Record the payment of interest and principal at maturity.

Answer 1

Working Notes:
	CALCULATION OF TOTAL INTEREST AND INTEREST RECOGNISED AS ON DECEMBER 31 & AT MATURITY
		Interest Expenses At December 31	Interest Expenses At Maturity	Total Interest
	Principal value of note	$                   80,000	$               80,000	$               80,000
	Rate %	8%	8%	8%
	Time	30 Days	6 Month	12 Month
	Total Interest	$                         533	$                 1,600	$           2,133.33
Number of days in year is taken 360 Days
Solution:
Journal Entries
Date	ACCT Title and explanation	Debit	Credit
Dec, 01	Cash	$                   80,000
	Note Payable		$               80,000
	(To record the issue of note @ 8 %)
Dec 31,	Interest Expenses	$                         533
	Interest Payable		$                     533
	(To record the interest expenses of Dec 31)
April, 30	Interest Expenses	$                     1,600
	Interest Payable	$                         533
	Note Payable	$                   80,000
	Cash		$               82,133
	(To record the payment of note with interest)