Keesha Co. borrows $225,000 cash on December 1, 2015, by signing a 120-day, 12%

Question

Keesha Co. borrows $225,000 cash on December 1, 2015, by signing a 120-day, 12% note with a face value of $225,000.

  

  

What is the amount of interest expense in 2015 and 2016 from this note? (Use 360 days a year. Do not round intermediate calculations.)

          

Prepare journal entries to record (a) issuance of the note, (b) accrual of interest at the end of 2015, and (c) payment of the note at maturity. (Use 360 days a year. Do not round intermediate calculations.)

         

Keesha Co. borrows $225,000 cash on December 1, 2015, by signing a 120-day, 12% note with a face value of $225,000.

Explanation / Answer

1. The date of maturity=1st Decemeber 2015+120-1(1st day is inclusive so)=29th march 2016

2.Interest for the year 2015=$225,000*12%*31/120=$2,325

Interest for the year 2016=$225,000*12%*89/120=$6,675

3.

cash $234,000

date account title debit credit 1st dec 2015 Cash $225,000 Notes payable $225,000 31st dec 2015 Interest $2,325 Notes payable $2,325 29th march 2016 Interest $6,675 Notes payable $2,27,325

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