Question

On November 30, 2016, ABC borrowed $40,000 from American National Bank by issuing an interest-bearing note payable.
This loan is to be repaid in three months (on February 28, 2017), along with interest computed at an annual rate of 9%.
The entry made on November 30 to record the borrowing was:
	Dr Cash			40,000
		Cr Notes payable			40,000
On February 28, 2017 ABC must pay the bank the amount borrowed plus interest.
Assume the beginning balance for Notes Payable is correct.
Interest through 12/31/16 must be accrued on the $40,000 note.

Answer 1

Journal Entry
Date	Account Title & Explanation	Debit	Credit
31-Dec-16	Interest Expense	$300.00
	Interest Payable		$300.00
	To Record Accrued Interest
28-Feb-17	Note Payable	$40,000.00
	Interest Payable	$300.00
	Interest Expense ($40000*9%*2/12)	$600.00
	Cash		$40,900.00
	To record Note Repaid with interest in 3 month
Working Note
Amount Of Borrowing= $40000
Term=3 Month
Interest Rate=9%
Accrued Interest on Dec 31, 2016= $40000*9%*1/12=$300