On June 1, Banana Company borrows $50,000 from Last Bank on a 6-month, $50,000, 12.25% note. a....

Question:

On June 1, Banana Company borrows $50,000 from Last Bank on a 6-month, $50,000, 12.25% note.

a. Prepare the entry on June 1.

b. Prepare the entry on June 30.

c. Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been mode through November 30.

d. What was the total financing cost (interest expense)?

Interest Bearing Notes:

Interest bearing note has a stated interest rate with the instrument (note payable). Companies issues interest bearing note to its creditors to pay obligation at a later date. Interest is calculated based on the face value of note payable.

Answer and Explanation:

Requirement a, b, c & d:

(a) Journal Entry
Date Particulars Debit Credit
1-Jun-20 Cash $50,000
12.25% Note Payable $50,000
(Being note payable issued against cash and recorded)
(b) Journal Entry
Date Particulars Debit Credit
30-Jun-20 Interest Expense $510
Interest Payable ($50,000 x 12.25% x 1/12) $510
(Being interest on note payable recorded)
(c) Journal Entry
Date Particulars Debit Credit
1-Dec-20 Interest Payable ($50,000 x 12.25% x 6/12) $3,063
12.25% Note Payable $50,000
Cash $53,063
(Being payment of note payable recorded)

(d). The total interest (finance) expense was $3,063.


Learn more about this topic:

Loading...
Accounting for Non-Interest & Interest-Bearing Notes

from Accounting 202: Intermediate Accounting II

Chapter 4 / Lesson 7
9.1K

Related to this Question

Explore our homework questions and answers library