Question

Notes Payable

A business issued a 180-day, 7% note for $70,000 to a creditor on account. Illustrate the effects on the accounts and financial statements of recording (a) the issuance of the note and (b) the payment of the note at maturity, including interest.

If no account or activity is affected, select "No effect" from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts.

a. Illustrate the effects on the accounts and financial statements of recording the issuance of the note.

Statement of Cash Flows	Balance Sheet								Income Statement
	Assets	=	Liabilities			+	Stockholders' Equity
		=		+		+
Statement of Cash Flows								Income Statement

b. Illustrate the effects on the accounts and financial statements of recording the payment of the note at maturity, including interest. Assume a 360-day year. If required, round interest expense to the nearest whole number.

Statement of Cash Flows	Balance Sheet						Income Statement
	Assets	=	Liabilities	+	Stockholders' Equity
		=		+
Statement of Cash Flows						Income Statement

Answer 1

1 Journal Entry for this will be :-
Particulars Debit Credit
a issuance of note payable
Account Payable $70000
Notes Payable $70000
(being note issued)
Both these account will come under current liabilities in the balance sheet.
b.payamnet of note payable on maturity including interest
Note Payable $70000
Interest Expenses (70000*7%*180/360days) $2450	70000*7%*180/360
Cash $72450
(being note paid at maturity including intertest)
Notes payable in current liabilities will decrease, interest expense goes to the income statement under expenses, and cash in current assets will decrease.