Question

Keesha Co. borrows $225,000 cash on December 1 of the current year by signing a 180-day, 10%, $225,000 note.

1. On what date does this note mature?
2. & 3. What is the amount of interest expense in the current year and the following year from this note?
4. 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.

Complete this question by entering your answers in the tabs below.

• Req 1
• Req 2 and 3
• Req 4

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

	On what date does this note mature?

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 Rate (%) Time Total interest

Journal entry worksheet

Note: Enter debits before credits.

	Transaction General Journal Debit Credit (a)

Answer 1

Requirement 1:

Maturity date

May 30

Explanation:

Total number of days to mature		180
Days in December [31-1]	30
Days in January	31
Days in February	28
Days in March	31
Days in April	30	150
Days in May		30

Requirement 2&3:

	Total through maturity	Interest expense current year	Interest expense following year
Principal	$225,000	$225,000	$225,000
Rate (%)	10%	10%	10%
Time	180/360	30/360	150/360
Total interest	$11,250	$1,875	$9,375

Calculations:

interest expense for the current year = $225,000 x 10% x (30/360) = $1,875

Interest expense for the following year = $225,000 x 10% x (150/360) = $9,375

Requirement 4:

	Date	Account title and explanation	Debit	Credit
(a)	Dec 1	Cash	$225,000
		Notes payable		$225,000
		[To record issuance of notes]
(b)	Dec 31	Interest expense	$1,875
		Interest payable		$1,875
		[To record accrued interest expense]
(c)	May 30	Interest expense	$9,375
		Interest payable	$1,875
		Notes payable	$225,000
		Cash		$236,250
		[To record cash paid for notes at maturity]