Question

On September 30, ABC Company borrows $120,000 from Ottawa State Bank by signing a 6-month, 7.25%, interest-bearing note.

Instructions: Prepare the necessary entries below associated with the note payable on the books of ABC Company.

(a)    Prepare the journal entry when the note was issued.                                           

(b)    Prepare the adjusting entry at December 31 to accrue interest.                          

(c)    Prepare the entry to record payment of the note at maturity date.   

Solution question 2:

Date	Account title and explanation	Debit	Credit

Answer 1

Date	Accounts Title and Explanation	Debit	Credit
Sep-30	Cash	120,000
	Note Payable		120,000
	(To record amount borrow )
Dec-31	Interest Expense	2,250		(120000*7.5%)/12 months * 3 months
	Interest Payable		2,250	(120000*7.5%)/12 months * 3 months
	(To record interest accrued )
Mar-31	Note Payable	120,000
	Interest Payable	2,250
	Interest Expense	2,250
	Cash		124,500
	(To record cash payment of loan on maturity)