Question

CC10-1 Accounting for Debt Financing [LO 10-2]

Nicole thinks that her business, Nicole’s Getaway Spa (NGS), is doing really well and she is planning a large expansion. With such a large expansion, Nicole will need to finance some of it using debt. She signed a one-year note payable with the bank for $47,000 with a 6 percent interest rate. The note was issued October 1, 2017; interest is payable semiannually; and the end of Nicole’s accounting period is December 31.

Required:

Prepare the journal entries required from the issuance of the note until its maturity on September 30, 2018, assuming that no entries are made other than at the end of the accounting period, when interest is payable, and when the note reaches its maturity. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Journal entries :

Date	account and explanation	debit	credit
Oct 1	Cash	47000
	Notes payable		47000
	(To record borrow)
Dec 31	Interest expense (47000*6%*3/12)	705
	Interest payable		705
	(to record accured interest)
Mar 31	Interest payable	705
	Interest expense	705
	cash		1410
	(To record interest paid)
Sep 30	Notes payable	47000
	Interest expense	1410
	Cash		48410
	(To record payment)