Entries for and Financial Statement Presentation of a Note Augustine Corporation

Question

Entries for and Financial Statement Presentation of a Note Augustine Corporation borrowed $150,000 from the J.P Morgan Chase Bank on June 1, 2013, on a 3-year, 6.4% note. Interest is paid annually on June 1. Required: Hide 1. Record the borrowing transaction in Augustine's journal. 2013 June 1 Record issuance of note at par Hide Feedback Correct Check My Work Feedback 1. When bonds are issued, any premium or discount is recorded in a separate valuation account. See Cornerstone 9-1. Learning Objective 2 and Learning Objective 3. Hide 2. Prepare the adjusting entries made at December 31, 2013 and 2014. 2013 Dec. 31 Record interest expense 2014 Dec. 31 Record interest expense Hide Feedback Incorrect Check My Work Feedback 2. Interest expense is matched to the period it was incurred. Any premium or discount is amortized to interest expense. Consider that interest is not paid on December 31st. Learning Objective 2 and Learning Objective 3. Hide 3. Prepare the necessary journal entry to recognize the first interest payment on June 1, 2014. For a compound journal entry, if an amount box does not require an entry, leave it blank. 2014 June 1 Record interest expense and payment of interest Hide Feedback Partially Correct Check My Work Feedback 3. Consider the adjusting entry made on December 31st. Learning Objective 2 and Learning Objective 3. Hide 4. Indicate how the note and associated interest would be presented in Augustine's December 31, 2014 balance sheet. Augustine Company Balance Sheet (partial) For the Year Ended December 31, 2014 Current liabilities: $ Long-term liabilities: Hide Feedback Incorrect Check My Work Feedback 4. Discount and premium accounts are valuation accounts. Learning Objective 2 and Learning Objective 3. Hide 5. Prepare the necessary journal entries to record the repayment of the note and the last year's interest payment on June 1, 2016. For a compound journal entry, if an amount box does not require an entry, leave it blank. 2016 June 1 Record interest expense and payment of interest 2016 June 1 Record repayment of note principal Hide Feedback Partially Correct Check My Work Feedback 5. Any premium or discount is amortized to interest expense over the life of the bond. The repayment of principal at maturity retires the obligation. Learning Objective 2 and Learning Objective 3. Check My Work (2 remaining)

Explanation / Answer

Journal Entry Date Particulars Dr. Amt Cr. Amt Answer 1. Jun-1 Cash                                                     Dr.          150,000 2013    To Notes Payable - 6.40%          150,000 Answer 2. Dec-31 Interest Exp.                                    Dr.              5,600 2013    To Interest Payable              5,600 Interest = $150,000 X 6.40% X 7/12 = $5600 Dec-31 Interest Exp.                                    Dr.              5,600 2014    To Interest Payable              5,600 Interest Exp. = $150,000 X 6.40% X 7/12 = $5600 Answer 3. June-1 Interest Exp.                                  Dr.              4,000 2014 Interest Payable                          Dr.              5,600    To Cash              9,600 Interest Exp. = $150,000 X 6.40% X 5/12 = $4000 Answer 4. Augustine Corporation Partial Balance Sheet As on Dec-31, 2014 Liabilities Notes Paybale - 6.40%          150,000 Current Liabilities Interest Payable              5,600 Answer 5. Journal Entry Date Particulars Dr. Amt Cr. Amt June-1 Interest Exp.                                  Dr.              4,000 2016 Interest Payable                          Dr.              5,600 Notes Payable - 6.40%              Dr.          150,000    To Cash          159,600

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