Keesha Co. borrows $195,000 cash on December 1, 2016, by signing a 120-day, 11%

Question

Keesha Co. borrows $195,000 cash on December 1, 2016, by signing a 120-day, 11% note with a face value of $195,000.

1. On what date does this note mature? (Assume a 365 day year.)

2. & 3. What is the amount of interest expense in 2016 and 2017 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 2016, and (c) payment of the note at maturity. (Use 360 days a year. Do not round intermediate calculations.)

Explanation / Answer

1 March 31 2017 2 Total through maturity Interest Expense 2016 Interest Expense 2017 Principal $195,000 $195,000 $195,000 Rate (%) 11% 11% 11% Time 120/360 30/360 90/360 Total interest $7,150 $1,788 $5,363 4 Transaction General Journal Debit Credit (a) Cash 195,000 Notes payable 195,000 (b) Interest expense 5,363 Interest payable 5,363 (c) Interest expense 1,788 Interest payable 5,363 Notes payable 195,000 Cash 202,151 Note: Interest expense and interest payable are actually $1787.5 and $5362.5

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