Question

In: Accounting

During the fiscal year, Dolphin City received $3,000,000 from a local financial institution to get them...

During the fiscal year, Dolphin City received $3,000,000 from a local financial institution to get them by until they begin collecting property taxes. The note must be paid back in 90 days. Record the appropriate entry in the General Fund for this note on the date they received the money from the financial institution. After this entry, record the appropriate entry to show the full amount of the note being paid back along with interest, assuming annual interest rate on the note was 6%.

Solutions

Expert Solution

When cash received :

Date particulars Dr($) Cr($)
Cash a/c 3000000
To note payable a/c 3000000
(being short term loan borrowed)

When principal and interest paid:

Interest for the period = ($3000000×6%)×90/365. = $180000×90/365. = $44384.

Date particulars Dr($) Cr($)
Expenditure a/c 44384
note payable a/c 3000000
To cash a/c 3044384
(being both interest and principal paid)

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