Question

A business issued a 45-day note for $99,000 to a creditor on account. The note was discounted at 7%. Journalize the entries to record (a) the issuance of the note on March 1 and (b) the payment of the note at maturity. Assume a 360-day year.

Answer 1

Answer:

The Journal entries are as follows:

(i) Account payable A/c Dr. $99,000

        To notes payable                       $99,000

(To record issue note payable)

(ii) Notes payable A/c     Dr. $99,000

    Interest Expense A/c Dr. $866

               To cash A/c                           $99,866

(To record payment of note at maturity)

Working Notes:

Interest Expense = $99,000 × 7% × (45 ÷ 360)

                            = $99,000 × 7% × 0.125

                            = $866