Question

Question: Keesha Co. borrows $200,000 cash on November 1, 2017, by signing a 90-day, 9% note with a face value

of $200,000.

1. On what date does this note mature?

2. How much interest expense results from this note in 2017? (Assume a 360-day year.)

3. How much interest expense results from this note in 2018? (Assume a 360-day year.)

4. Prepare journal entries to record (a) issuance of the note, (b) accrual of interest at the end of 2017, and

(c) payment of the note at maturity. (Assume no reversing entries are made.)

Answer 1

Step 1: Definition of the accrued interest

The accrued interest is the interest that is due, but the interest payment is not made. The amount of the accrued interest is not received till the end of the year. It is recorded in the balance sheet as a current asset.

Step 2: Maturity of the bonds

The bonds will mature on January 30, 2018

Step 5: Journal Entries

Date	Particulars	Debit	Credit
November 1, 2017	Cash	$200,000
	9% Notes Payable		$200,000
	(To record the issue of the bonds)
December 31, 2017	Interest Expense	$3,000
	Interest Payable		$3,000
	(Being entry to record the accrued interest)
January 30, 2017	Interest Expense	$1,500
	Interest Payable	$3,000
	12% Bonds Payable	$200,000
	Cash		$204,500
	(Being entry for the payment of the bonds)

 

 

1.    Maturity date is January 30, 2018.

2.    Amount of interest expense in 2017 is $3,000.

3.    Amount of interest expense in 2018 is $1,500.