Keesha Co, borrows $255,000 cash on November 1, 2015, by signing a 90-day, 12% n
ID: 2447558 • Letter: K
Question
Keesha Co, borrows $255,000 cash on November 1, 2015, by signing a 90-day, 12% note with a face value of $255.000. 1. On what date does this note mature? Assume a 365 day year. 2-3. What is the amount of interest expense in 2015 and 2016 from this note? (Use 360 days a year. Do not round intermediate calculations.) 4. 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.)Explanation / Answer
Answer:
1)
Maturity Date = Issue Date + 90 days = Nov 1, 2015 + 90 days = January 30, 2016.
No. of days is calculated from next day of Issue Date i.e. from Nov 2, 2015
2-3) Calculation of Interest Amount
Total Interest Amount for 90 days = $255,000 x 12% x 90 /360 = $7,650
Interest Amount to be recorded:
As on Dec 31, 2015 for 60 days = $7,650 x 60 / 90 = $5,100
As on January 30, 2016 for 30 days = $7,650 x 30 /90 = $2,550
Interest Expenses in 2015 = $5,100
Interest Expenses in 2016 = $2,550
4) Journal Entries
(a) On issuance of note
Cash / Bank A/c …………..Dr. $255,000
To 12% Note A/c $255,000
(Being 12% note for $255,000 issued)
(b) Accrual of Interest at the end of 2015
Interest Expenses (P&L A/c) …..Dr.. $5,100
To Accrued Interest Payable on Note $5,100
(Being accrued interest for 60 days on 12% note is recorded)
(C) Payment of the note at maturity
12% Note………………Dr. $255,000
TO Cash/Bank A/c $255,000
(Being 12% note paid on marurity)
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