Question

5. On May 1, Sea Crest, Inc. borrows $80,000 from the bank by signing a 6-month, 12%, interest-

     bearing note. Prepare the necessary entries below associated with the note payable on the books of

     Sea Crest, Inc.:

(a)       Prepare the entry on May 1 when the note was issued.

           

(b)       Prepare any adjusting entries necessary on May 31 in order to prepare the fiscal year ending

         financial statements.

(c)       Prepare the entry on November 1 to record payment of the note at maturity. Assume no interest

            accrual entries, other than the one on May 31, have been made.

Answer 1

--Required journal entries

Date	Accounts title	Debit	Credit
01-May	Cash	$80,000
	Notes Payable		$80,000
	(to record issue of note)
31-May	Interest Expense	$800
	Interest Payable ($80000 x 12% x 1/12)		$800
	(to adjust interest accrued for 1 month)
01-Nov	Interest Expense ($80000 x 12% x 5/12)	$4,000
	Interest Payable	$800
	Notes Payable	$80,000
	Cash		$84,800
	(to record payment at maturity)