Question

On October 1, 2018, Mong Company borrowed $5 million from its bank under a 9-month note payable which required interest at 4%.  Prepare the Journal Entries required on October 1 for the borrowing; on December 31 to accrue interest; and on June 30, 2019 to pay off the note.

Answer 1

Date	Account Titles and Explanations	Debit ($)	Credit ($)
October 1, 2018	Cash	50,00,000
	Note Payable		50,00,000
	(Being money borrowed from bank under a 9-month Note Payable)
December 31, 2018	Interest Expense	50,000
	Interest Payable		50,000
	(Being accrued interest recognized on note payable)
June 30, 2019	Interest Expense	1,00,000
	Interest Payable	50,000
	Note Payable	50,00,000
	Cash		51,50,000
	(Being payment of note payable)

Notes:

1. Calculation of Interest Payable as on December 31, 2018:

Interest expense for 3 months from October to December = $5,000,000 * 4% * (3/12) = $50,000

2. Calculation of Interest expense for 6 months from January, 2019 till June, 2019 = $5,000,000 * 4% * (6/12) = $100,000