Question

Sylvestor Systems borrows $106,000 cash on May 15, 2017, by signing a 60-day, 4% note.

1. On what date does this note mature?

2. Assume the face value of the note equals $106,000, the principal of the loan.

(a) Prepare the journal entry to record issuance of the note.

(b) First, complete the table below to calculate the interest expense at maturity. Use those calculated values to prepare your journal entry to record payment of the note at maturity. (Use 360 days a year. Round final answers to the nearest whole dollar.)

Answer 1

1. Borrowed date = May 15.

Duration of note = 60 days.

So 60 days are calculated from May 16 to next 60 days.

Maturity date = July 14.

2. A) Journal entry to record the issuance of note is,

Cash ac. Dr. $ 106,000

To Notes payable. Cr $ 106,000

B) Interest rate = 4%.

Principal value = 106,000.

So interest is calculated on principal value.

Interest = ( 106,000 x 4% x 60)/360

Interest = 254,400/360

Interest = $ 706.67

Interest = $ 707.

So on maturity date, principal value and interest amount to be paid. The journal entry will be,

Notes payable ac. Dr. $ 106,000

Interest Expense Dr $ 707

To Cash Cr. $ 106,707

SUMMARY:

Maturity date is on July 14.

Entry for issue of note is debit cash and credit notes payable. To calculate interest Expense, need to multiply by the principal value with interest rate and then multiply with number of days and then divide by total number of days in a year.

Interest Expense is $ 707.

On payment date, full amount is paid with interest too.