Asked by admin @ in Business viewed by 296 People
On December 1, Williams Company borrowed $45,000 cash from Second National Bank by signing a 90-day, 9% note payable. a. Prepare Williams' journal entry to record the issuance of the note payable. b. Prepare Williams' journal entry to record the accrued interest due at December 31. c. Prepare Williams' journal entry to record the payment of the note on March 1 of the next year.
Answered by admin @
Answer:
Explanation:
The journal entries are shown below:
a. Cash A/c Dr $45,000
To Notes payable A/c $45,000
(Being note is issued for cash)
b. Interest expense A/c Dr $333
To Interest payable A/c $333
(Being accrued interest adjusted)
The computation is shown below:
= Principal × rate of interest × number of days ÷ (total number of days in a year)
= $45,000 × 9% × (30 days ÷ 365 days)
= $333
The 30 days is calculated from December 1 to December 31
(C) Interest expense A/c Dr $665.75
Interest payable A/c Dr $333
Notes payable A/c Dr $45,000
To Cash A/c $45,998.75
(Being cash is paid on maturity)
The computation is shown below:
= Principal × rate of interest × number of days ÷ (total number of days in a year)
= $45,000× 9% × (60 days ÷ 365 days)
= $665.75
From January 1 to March 1 it would be 60 days
We assume 365 days a year.
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