A business issued a 45-day, 4% note for $275,000 to a creditor on account. Journ

Question

A business issued a 45-day, 4% note for $275,000 to a creditor on account.

Journalize the entries to record (a) the issuance of the note and (b) the payment of the note at maturity, including interest. Assume a 360-day year. Refer to the Chart of Accounts for exact wording of account titles.

Chart of Accounts

Journal

a. Journalize the entry to record the issuance of the note on January 1. Refer to the Chart of Accounts for exact wording of account titles.

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JOURNAL

ACCOUNTING EQUATION

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b. Journalize the entry to record the payment of the note at maturity, including interest on February 15. Assume a 360-day year and round amounts to the nearest whole dollar. Refer to the Chart of Accounts for exact wording of account titles.

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JOURNAL

ACCOUNTING EQUATION

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CHART OF ACCOUNTS General Ledger ASSETS 110 Cash 111 Accounts Receivable 112 Interest Receivable 113 Notes Receivable 115 Merchandise Inventory 116 Supplies 118 Prepaid Insurance 120 Land 123 Building 124 Accumulated Depreciation-Building 125 Office Equipment 126 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 213 Interest Payable 214 Notes Payable 215 Salaries Payable 216 Social Security Tax Payable 217 Medicare Tax Payable 218 Employees Federal Income Tax Payable 219 Employees State Income Tax Payable 221 Retirement Savings Deductions Payable 224 Federal Unemployment Tax Payable 225 State Unemployment Tax Payable 226 Vacation Pay Payable 227 Unfunded Pension Liability 228 Product Warranty Payable 229 EPA Fines Payable 230 Litigation Claims Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Merchandise Sold 520 Salaries Expense 524 Depreciation Expense-Building 525 Delivery Expense 526 Repairs Expense 529 Selling Expenses 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Supplies Expense 535 Payroll Tax Expense 536 Vacation Pay Expense 537 Pension Expense 538 Cash Short and Over 539 Product Warranty Expense 540 Damage Awards and Fines 541 Miscellaneous Expense 710 Interest Expense

Explanation / Answer

SOLUTION

S.No. Accounts title and Explanations Debit ($) Credit ($) 1. Accounts Payable 275,000 Notes Payable 275,000 2. Notes payable 275,000 Interest expense ($275,000 *4%*45/360) 1,375 Cash 276,375

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