Question

Branch Corporation issued $12 million of commercial paper on March 1 on a nine-month note. Interest was discounted at issuance at a 9% discount rate. Prepare the journal entry for the issuance of the commercial paper and its repayment at maturity.

Answer 1

1 Cash 11,190,000

Discount on Note Payable 810,000

Note Payable 12,000,000

2- Interest Expense 810,000

Discount on Note Payable 810,000

3- Note Payable 12,000,000

Cash 12,000,000

Step-by-step explanation:

In order to pass the Journal entry for issuance of Note Payable. First we need to calculate the Discount on issue of Bond Payable. The discount on note payable is calculated using the 12,000,000 x 9% x 9/12 = 810,000. In case of note payable is discount is interest expense for issuer hence on due corporation will pay full value of note to purchaser of note.