(TCO D) On August 31, Jenks Co. partially refunded $180,000 of its outstanding 1

Question

(TCO D) On August 31, Jenks Co. partially refunded $180,000 of its outstanding 10% note payable, made one year ago to Arma State Bank by paying $180,000 plus $18,000 interest, having obtained the $198,000 by using $52,400 cash and signing a new one-year $160,000 note discounted at 9% by the bank.
Instructions
(1) Make the entry to record the partial refunding. Assume Jenks Co. makes reversing entries when appropriate.
(2) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount.


(Points : 30)

Explanation / Answer

1) Notes Payable 180,000 Interest Expense 18,000 Discount on Notes Payable (9% × $160,000) 14,400 Notes Payable 160,000 Cash 52,400 (2) Interest Expense (1/3 × $14,400) 4,800 Discount on Notes Payable 4,800

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