Question

Sara borrowed cash from bank by issuing a 90-day note with a $3,500 face amount. The...

Sara borrowed cash from bank by issuing a 90-day note with a $3,500 face amount. The note is discounted at 6% and issued on June 1, 2015.

a. Determine the proceeds of the note (round interest to the nearest whole dollar).

b. Prepare the journal entry to record the issuance of the note.

c. Prepare the journal entry to record the payment of the note

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Homework Answers

Answer #1

a. Proceeds of the note

Proceeds of Note = Face Amount - Discount

=$3500 - ($3500 x 6% x 90 / 360)

=$3500 - $53

=$3447

b. Journal Entry to record issuance of note

Date General Journal Debit Credit
Jun-01 Cash $3447
Interest Expense $53
          Notes payable $3500

c. Journal Entry to record the payment of note

Date General Journal Debit Credit
Aug-29 Notes Payable $3500
           Cash $3500
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