Precision Castparts, a manufacturer of processed engine parts in the automotive
ID: 2474459 • Letter: P
Question
Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $39.7 million cash on October 1, 2015, to provide working capital for anticipated expansion. Precision signs a one-year, 9% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.
10.
value:
2.50 points
Required information
Prepare the journal entries on October 1, 2015, to record the issuance of the note. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.Enter your answers in dollars, not in millions.)
Record the issuance of the note for Precision Castparts.
Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $39.7 million cash on October 1, 2015, to provide working capital for anticipated expansion. Precision signs a one-year, 9% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.
Explanation / Answer
Solution:
Date
Account Title and Explanation
Debit
Credit
October 1, 2015
Cash A/c Dr.
$39,700,000
To Notes Payable
$39,700,000
(Note Payable for one year at 9% per annum interest payable at maturity recorded)
Interest expenses payable is recognised at the end of year (i.e. Dec 31) and the interest will be paid at maturity as per the term of note. Hence at the time of recording no entry is to be passed related to Interest payment or Interest Expenses payable....
Date
Account Title and Explanation
Debit
Credit
October 1, 2015
Cash A/c Dr.
$39,700,000
To Notes Payable
$39,700,000
(Note Payable for one year at 9% per annum interest payable at maturity recorded)
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