The following transactions of Emergency Pharmacies ocourred during 2018 and 2019 Mar. 1, 2018:...

Question:

The following transactions of Emergency Pharmacies ocourred during 2018 and 2019

Mar. 1, 2018: Borrowed $280,000 from Nicevile Bank. The eight-year, 14% note requres payments due annualy on March 1. Each payment consists of $35,000 principal plus one year's interest

Requirements

1. Journalize the transactions in the Emergency Pharmacies general joumal. Round to the nearest dolar. Explanations are not required.

2. Prepare the liabilities section of the balance sheet for Emergency Pharmacies on March 1, 2019 after all the journal entries are recorded.

Date Accounts Debit Credit
2018 Mar. 1

Notes Payable:

Notes payable is a liability account used to record amounts owed to outside entities which have been backed up with promissory notes. The written promissory note differentiates notes payable from accounts payable. Notes also frequently have stated interest rates which means that not only must the principal of the note be repaid but also interest on the principal.

Answer and Explanation:

1. Journalize

Date Account Debit Credit Explanation
Mar. 1, 2018 Cash $280,000 Record inflow of cash from borrowing
Notes Payable $280,000 Record note payable at principal value
Mar. 1, 2019 Interest Expense $39,200 Record interest expense for one year on carrying value of note ($280,000 x 14%)
Notes Payable $35,000 Remove $35,000 paid towards principal
Cash $74,200 Record outflow of cash in payment of principal plus one year's interest ($39,200 + $35,000)

2. Liabilities Section

Long Term Liabilities
Notes Payable ($280,000 - $35,000) $245,000

Learn more about this topic:

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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

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