E10-2 Recording a Note Payable through Its Time to Maturity [LO 10-2] Many busin
ID: 2569436 • Letter: E
Question
E10-2 Recording a Note Payable through Its Time to Maturity [LO 10-2] Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Target Corporation is one of America's largest general merchandise retailers. Each Christmas, Target builds up its inventory to meet the needs of Christmas shoppers. A large portion of Christmas sales are on credit. As a result, Target often collects cash from the sales several months after Christmas. Assume that on November 1, 2015, Target borrowed $6.4 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 10.00 percent payable at maturity. The accounting period ends December 31. Required 1,2&3. Complete the required journal entries to record the note on November 1, 2015, interest on the maturity date, April 30, 2016, assuming that interest has not been recorded since December 31, 2015. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list View journal entry worksheet ebit Credit 1 Record the borrowing of $6,400,000. Record the interest accrued on the note payable as of December 31, 2015 2 3 Record the repayment of the note plus interest on the maturity date. Note :·journal entry has been enteredExplanation / Answer
1. 1-Nov-15 Cash A/c Dr..............$6.4 million
To Notes payable (Metropoliton Bank) A/c $6.4 million
(Being cash received from Metropolition bank against notes paybale in 6 months @ 10% p.a.)
2. 31-Dec-15 Interest on notes payable A/c Dr....0.1067 million
To Interest accrued on notes payable A/c 0.1067 million
(Being interest accrued for 2months )
Calculation of interest: 6.4 million *10%*(2/12)
3. 30-Apr-2016 Interest on notes payable A/c Dr..........$0.213 million
Interest accrued on notes payable A/c Dr......$0.1067 million
Notes payable (Metropoliton Bank) A/c Dr......$6.4 million
To Bank A/c $6.72 million
(Being interest recorded and notes payable honoured)
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