Nicole thinks that her business, Nicole’s Getaway Spa (NGS), is doing really wel
ID: 2565619 • Letter: N
Question
Nicole thinks that her business, Nicole’s Getaway Spa (NGS), is doing really well and she is planning a large expansion. With such a large expansion, Nicole will need to finance some of it using debt. She signed a one-year note payable with the bank for $41,000 with a 6 percent interest rate. The note was issued October 1, 2014; interest is payable semiannually; and the end of Nicole’s accounting period is December 31.
Prepare the journal entries required from the issuance of the note until its maturity on September 30, 2015, assuming that no entries are made other than at the end of the accounting period, when interest is payable, and when the note reaches its maturity. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)
1
Record the borrowing of $41,000.
2
Record the accrued interest on December 31, 2014.
3
Record the interest payment on March 31, 2015, assuming no interest accrual has been recorded since December 31, 2014.
4
Record the interest payment on September 30, 2015, assuming no interest accrual has been recorded since the payment on March 31, 2015.
5
Record the repayment of the note on its maturity date.
Nicole thinks that her business, Nicole’s Getaway Spa (NGS), is doing really well and she is planning a large expansion. With such a large expansion, Nicole will need to finance some of it using debt. She signed a one-year note payable with the bank for $41,000 with a 6 percent interest rate. The note was issued October 1, 2014; interest is payable semiannually; and the end of Nicole’s accounting period is December 31.
Explanation / Answer
Answer
Date
General Journal
Dr
Cr
Working
YEAR 2014
01-Oct-14
Cash
41000
Notes payable signed and cash received
Notes Payable (6%)
41000
31-Dec-14
Interest Expense
615
Interest for 3 months recognised as due [41000 x 6% x 3months/12 months = $615]
Interest payable
615
YEAR 2015
31-Mar-15
Interest Expense
615
6 months' interest paid, including 3 months' interest due in 2014 [41000 x 6% x 6months/12 months = $1230]
Interest payable
615
Cash
1230
30-Sep-15
Interest expense
1230
Next 6 months interest recognised and paid [41000 x 6% x 6months/12 months]
Cash
1230
30-Sep-15
Notes Payable (6%)
41000
Notes payable paid on maturity
Cash
41000
‘OR’ a single entry can be passed on 20 Sept 2015 for Interest and Notes payable payment like this---
30-Sep
Notes Payable (6%)
41000
Interest expense
1230
Cash
42230
Date
General Journal
Dr
Cr
Working
YEAR 2014
01-Oct-14
Cash
41000
Notes payable signed and cash received
Notes Payable (6%)
41000
31-Dec-14
Interest Expense
615
Interest for 3 months recognised as due [41000 x 6% x 3months/12 months = $615]
Interest payable
615
YEAR 2015
31-Mar-15
Interest Expense
615
6 months' interest paid, including 3 months' interest due in 2014 [41000 x 6% x 6months/12 months = $1230]
Interest payable
615
Cash
1230
30-Sep-15
Interest expense
1230
Next 6 months interest recognised and paid [41000 x 6% x 6months/12 months]
Cash
1230
30-Sep-15
Notes Payable (6%)
41000
Notes payable paid on maturity
Cash
41000
‘OR’ a single entry can be passed on 20 Sept 2015 for Interest and Notes payable payment like this---
30-Sep
Notes Payable (6%)
41000
Interest expense
1230
Cash
42230
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