Keesha Co. borrows $265,000 cash on November 1, 2017, by signing a 150-day, 11%

Question

Keesha Co. borrows $265,000 cash on November 1, 2017, by signing a 150-day, 11% note with a face value of $265,000.

1. On what date does this note mature? (Assume that February has 28 days)

March 26, 2018.

March 27, 2018.

March 28, 2018.

March 29, 2018.

March 31, 2018.

2. & 3. What is the amount of interest expense in 2017 and 2018 from this note? (Use 360 days a year. Round final answers to the nearest whole dollar.)



4. Prepare journal entries to record (a) issuance of the note, (b) accrual of interest at the end of 2017, and (c) payment of the note at maturity. (Assume no reversing entries are made.) (Use 360 days a year. Do not round intermediate calculations.)

Explanation / Answer

1. On what date does this note mature?

Maturity date = March 31, 2018

2. & 3. What is the amount of interest expense in 2017 and 2018 from this note? (Use 360 days a year. Round final answers to the nearest whole dollar.)

2017 Interest expenses = 265000*11%*60/360 = 4858

2018 Interest expenses = 265000*11%*90/360 = 7288

4. Prepare journal entries to record (a) issuance of the note, (b) accrual of interest at the end of 2017, and (c) payment of the note at maturity. (Assume no reversing entries are made.) (Use 360 days a year. Do not round intermediate calculations.)

Date accounts & explanation debit credit 2017 Nov 1 Cash a/c 265000 Notes payabale 265000 (To record amount borrowe) 2017 Dec 31 Interest expenses 4858 Interest payable a/c 4858 (To record accured interest) 2018 mar 31 Notes payable 265000 Interest payable 4858 Interest expenses 7288 Cash a/c 277146 (TO record maturity of notes)

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