26. On August 1, 2016, Denver& Co. borrowed money from the bank by issuing a one

Question

26. On August 1, 2016, Denver& Co. borrowed money from the bank by issuing a one year, $24,000 face value discount note. The note carried a 6% discount rate. a) Prepare the journal entry to record the issuance of the note. Compute the amount of interest expense that will be shown on the 2016 income statement and prepare the appropriate journal entry. c) Prepare the liabilities section of the balance sheet at December 31, 2016. d) W hat is the total amount of cash that will be paid to the bank at the maturity of the note on August 1, 2017? Prepare all necessary journal entries on August 1, 2017 (assume the note was paid in full). Answer:

Explanation / Answer

Sr. No. Journal Entries Date Account Title and explanation Debit Credit A) Aug 01, 2016 Cash $                  24,000       To 6% Note $                     24,000 (To Record the 6% note issuance against money Borrowed) B) Dec 31, 2016 Interest Expenses ($ 24,000 X 6% X 5/12) $                        600     To Interest Payable $                           600 (To Record the interest Payable for the year 2016) D) Aug 01, 2017 6% Note $                  24,000 Interest Exenses($ 24,000 X 6% X 7/12) $                        840 Interest Payable $                        600             To Cash $                     25,440 (To Record the cash payment of 6% note with interest) C) Answer = C: Liability Section of the Balance Sheet Liabilities Section 6% Note                                                                   $ 24,000 Interest Payable on 6% Note                           $ 600 Total $                  24,600

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