Question

Entries for notes payable Bull City Industries is considering issuing a $100,000, 7% note to a creditor on account. Assume a 360-day year.

a. If the note is issued with a 45-day term, journalize the entries to record:
1. the issuance of the note.
2. the payment of the note at maturity.
b. If the note is issued with a 90-day term, journalize the entries to record:
1. the issuance of the note.
2. the payment of the note at maturity.

Answer 1

The Journal entries are as follows:

(a)

(i) Account payable A/c Dr. $100,000

To Notes payable $100,000

(To record issue notes payable)

(ii) Notes payable A/c Dr. $100,000

Interest expense A/c Dr. $875

To cash A/c $100,875

(To record payment of notes)

Workings:

Interest expense = 100,000 × 7% × (45/360)

= $875

(b)

(i) Account payable A/c Dr. $100,000

To Notes payable $100,000

(To record issue notes payable)

(ii) Notes payable A/c Dr. $100,000

Interest expense A/c Dr. $1,750

To cash A/c $101,750

(To record payment of notes)

Workings:

Interest expense = 100,000 × 7% × (90/360)

= $1,750