Question

XYZ Co. borrows $105,000 cash on November 1 of the current year by signing a 120-day, 9%, $105,000 note.

1. On what date does this note mature?
1a. What is the amount of interest expense in the current year and the following year from this note?
1b. Prepare journal entries to record (a) issuance of the note, (b) accrual of interest on December 31, and (c) payment of the note at maturity.

1. On what date does this note mature? (Assume that February has 28 days)

1a. What is the amount of interest expense in the current year and the following year from this note? (Use 360 days a year. Round final answers to the nearest whole dollar.)

	total through maturity	interest expense current year	interest expense following year
principal		N/A	N/A
rate %		N/A	N/A
time
total interest

1b. (A) Record the issuance of the note on Nov 1. (B) Record the interest accrued on the note as of Dec 31, current year. (C) Record payment of the note at maturity, assuming no reversing entries were made on Jan 1.

Transaction	General Journal	Debit	Credit
a
b
c

Answer 1

a) The Date of Maturity of Loan is 01st March of Next Year..

This can be computed as follows:

It is given that tenure of loan = 120 days from 01st November

• 30 days in november
• 31 days in December
• 31 Daya in January
• 28 Days in february

120 days shall complete by 28th february and the next day i.e 1st March (30+31+31+28) will be the maturity date

b) Following information given in the question:

Principle Amount Borrowed = $1,05,000

Rate of Interest = 9% p.a

Interest Formula = Principle Amount * Rate of Interest * (No.of Days amount due in year)/Total no.of days in a year

Therefore, Interest till Dec 31 = 105000*9%*(30+31)/360 = $1601 ( Rounded off)

[ Since interest need to be calculated for only Nov & Dec only i.e 30 & 31 days respectively is considered in the above formula ]

Interest for the Next Year = 105000*9%*(31+28)/360 = $1548.75~$1549 ( Rounded off )

[ Since interest in next year only Jan and Feb only i.e 31 and 28 days respectively is considered in the above formula.

c) Please reffer the attached image for jounal entries