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
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.
|2018 Mar. 1|
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:
|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|
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
from Financial Accounting: Help and ReviewChapter 8 / Lesson 7