Precision Castparts, a manufacturer of processed engine parts in the automotive and airline...

Question:

Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $40.9 million cash on October 1, 2018, to provide working capital for anticipated expansion. Precision signs a one-year, 8% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.

Required:

1. Prepare the journal entries on October 1, 2018, to record the issuance of the note. (If no entry is required for a transaction/event, select 'No journal entry required' in the first account field. Enter your answers in dollars, not in millions (i.e., $5.5 million should be entered as 5,500,000).

2. Record the adjustments on December 31, 2018. (If no entry is required for a transaction/event, select 'No journal entry required' in the first account field. Enter your answers in dollars, not in millions (i.e., $5.5 million should be entered as 5,500,000).

3. Prepare the journal entries on September 30, 2019, to record payment of the notes payable at maturity. (If no entry is required for a transaction/event, select 'No journal entry required' in the first account field. Enter your answers in dollars, not in millions (i.e., $5.5 million should be entered as 5,500,000).

Note Payable:

A note payable a promise made by a borrower to a lender that he or she will repay a loan with a designated amount of interest within a predetermined period of time. It is a written promissory note prepared for the lender and the borrower.

Answer and Explanation:

The journal entries for the given dates are as follows;

Date Account ($) Debit ($) Credit
1) October 1, 2018 Cash 40,900,000
To Note Payable 40,900,000
2) December 31, 2018 Interest Expenses( $40,900,000 * 8% * 3/12) 818,000
To Interest Payable 818,000
3) September 30, 2019 Note Payable 40,900,000
Interest Payable 818,000
Interest Expenses( $40,900,000 * 8% * 9/12) 2,454,000
To Cash 44,172,000


Learn more about this topic:

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

from Accounting 202: Intermediate Accounting II

Chapter 4 / Lesson 7
7K

Related to this Question

Explore our homework questions and answers library