Precision Castparts, a manufacturer of processed engine parts in the automotive

Question

Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $40 million cash on October 1, 2012, to provide working capital for anticipated expansion. Precision signs a one-year, 8% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.

Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $40 million cash on October 1, 2012, to provide working capital for anticipated expansion. Precision signs a one-year, 8% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.

Prepare the journal entries on September 30, 2013, to record payment of the notes payable for Precision Castparts. (Enter your answers in dollars not in millions. Omit the "$" sign in your response.) Prepare the journal entries on September 30, 2013, to record payment of the notes receivable for Midwest Bank. (Enter your answers in dollars not in millions. Omit the "$" sign in your response.)

Explanation / Answer

3a. interest expense Dr. 3.2 million

interest payable Dr. 3.2 million

Notes payable Dr. 40 million

Cash Cr. 46.4 million

(40 million*8%=3.2)

b. Cash Dr. 46.4

Notes receivable Cr. 40 million

Interest receivable Cr. 3.2 million

Interest revenue Cr. 3.2 million

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