Falconer Products, Inc. borrowed S630,000 by issuing a 9-month note on July 1 of

Question

Falconer Products, Inc. borrowed S630,000 by issuing a 9-month note on July 1 of the current fiscal year. The note is due on April 1 of the following fiscal year. The short-term note carries a 10% annual interest rate with interest due at maturity. The company's fiscal year ends on December 31, Prepare the journal entries on July 1 and December 31 of the current year. Prepare the journal entry to record the note payable on July 1. (Record debits first, then credits. Exclude explanations from any journal entries.) Account July 1 (current year)

Explanation / Answer

Journal entry to record the Sale of Note on July 1st

Cash A/c                  Dr         $6,30,000

     Note payable A/c                      $ 6,30,000

Adjusting entry on 31.12 for recording interest

Note Interest expenses A/c   Dr          $31,500

      Accrued Interest payable                       $31,500

(630,000*10%*6/12)

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