Problems. Show all computations and make journal entries in proper form, as appr

Question

Problems. Show all computations and make journal entries in proper form, as appropriate. 1. Derek Morgan Company raised $14 million cash on October 1, 2016, to provide working capital for year-ene production. De rek issued a S 10 million, four-rnonth 12% promissory note where interest is payable at maturi and raised the remaining $4 million by signing a $4.4 million, zero-interest bearing note due in one year a. Prepare the journal entries to record the above events. b. Prepare the adjusting entries, assuming a December 31, 2016 year-end, related to the notes above.

Explanation / Answer

Date Accounts and Explanation Debit Credit Oct 1, 2016 Cash $        14,000,000 Promissory Note payable $        10,000,000 Zero interest note payable $          4,000,000 Dec 31, 2016 Interset Expense $              400,000 Interest payable(10 M x 12% x 3/12) $              300,000 Zero interest note payable (4 M x 10% x 3/12) $              100,000 Note: Interest on zero interest note: (4.4-4)/4 = 10%

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