Question

On August 1, 2021, Trico Technologies, an aeronautic electronics company, borrows $20.8 million cash to expand operations. The loan is made by FirstBanc Corp. under a short-term line of credit arrangement. Trico signs a six-month, 6% promissory note. Interest is payable at maturity. FirstBanc Corp.’s year-end is December 31. Required: 1.-3. Record the necessary entries in the Journal Entry Worksheet below for FirstBanc Corp. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in dollars, not in millions (i.e. 5 should be entered as 5,000,000).)

Answer 1

Answer:

Record the necessary entries in the Journal Entry Worksheet below for FirstBanc Corp.

August 01, 2021:

Cash-                     20.800.000

Notes Payable-                          20.800.000

December 31, 2021:

Interest Expense-        520.000

Interest Payable-                           520.000

January 31, 2022:

Notes Payable-     20.800.000

Interest Payable-    520.000

Interest Expense-    104.000

Cash-                                           21.424.000

Explanation:

August 01, 2021:

Cash-                     20.800.000

Notes Payable-                          20.800.000

December 31, 2021:

Interest Expense-        520.000

Interest Payable-                           520.000

January 31, 2022:

Notes Payable-     20.800.000

Interest Payable-    520.000

Interest Expense-    104.000

Cash-                                           21.424.000

Answer 2

Amount of interest expenses for 5 months at 6$ annual is $507,500

Interset expenses based problem:

Amount of interest expenses for 5 month = [20,300,000 × 6% × 5]/12

Amount of interest expenses for 5 month = $507,500

Journal entries:

Date            Account and title                       Debit          Credit

Aug 1 Cash                              $20,300,000

              To Notes payable                                 $20,300,000

Dec 31 Interest Expense                  $507,500

                To interest payable                             $507,500

Jan 31 Notes payable                $20,300,000

               Interest Expense                $101,500

               Interest payable                $507,500

                To Cash                                              $20,909,000

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