Question

On October 1, Eder Fabrication borrowed $79 million and issued a nine-month, 11% promissory note. Interest was payable at maturity. Prepare the journal entry for the issuance of the note and the appropriate adjusting entry for the note at December 31, the end of the reporting period.

Answer 1

(A) October 1st

Cash 79,000,000

Note Payable 79,000,000

Interest Expense 2,172,500

Interest Payable 2,172,500

Step-by-step explanation:

(A) there is no information about the note being use to receive cash or to settle a previous debt, we assuem is for cash.

(B)

principal \times rate \times time = interest \\

79,000,000 \times 0.11 \times 3/12 = 2,172,500

It is import to have the time and rate in the same measurement. the rates are usually annual, so we most express time in years.