Question

Exercise 9-4 Interest-bearing notes payable with year-end adjustments LO P1

Keesha Co. borrows $260,000 cash on December 1, 2017, by signing a 90-day, 12% note with a face value of $260,000.

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

• February 24, 2018.

• February 25, 2018.

• February 26, 2018.

• February 27, 2018.

• March 01, 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.)

Answer 1

1)	Maturity DATE	March 1, 2018
2) & 3)	Interest Expense 2017 = (260000*12%)*31/360
	2686.7
	Interest Expense 2018 = (260000*12%)*59/360
	5113.3
4)		Accounts	Debit	Credit
	a)	CASH	260000
		Note Payable		260000
		(To record issuance of Note)
	b)	Interest Expense	2686.7
		Interest Payable		2686.7
		(To record interest accrued)
	c)	Note payable	260000
		Interest payable	2686.7
		Interest Expense	5113.3
		Cash		267800
		(to record repayment of note)