Question

Keesha Co. borrows $250,000 cash on December 1 of the current year by signing a 120-day, 12%, $250,000 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.

Answer 1

Req 1.
Maturity date : (30+31+28+31):	Mar-31
Req 2 and 3
Interest for Current year:
Amount of note			250000
Multiply: Annual rate of interest		12%
Annual interest			30000
Interest for current year = 30,000*30/360=	2500
Interest for Following year =30000*90/360=	7500
Req 4.
Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
01-Dec	Cash				2,50,000
	Notes payable				2,50,000
	(for issuance of notes)
31-Dec	Interest expense			2500
	Interest payable				2500
	(for interest expense due)
31-Mar	Notes payable			250000
	Interest expense			2500
	Interest payable			7500
	Cash					260000
	(for notes repaid)