Question

On October 1, Eder Fabrication borrowed $55 million and issued a nine-month, 13% 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

Answer 1

Step-by-step explanation:

The journal entries are shown below:

Cash A/c Dr $55,000,000

To Notes payable $55,000,000

(Being note payable issued for cash)

Interest expense A/c Dr $1,787,500

To Interest payable A/c $1,787,500

(Being interest recorded)

The interest expense is computed by

= Borrowed amount × interest rate × number of months ÷ (total number of months in a year)

= $55,000,000 × 13% × (3 months ÷ 12 months)

= $1,787,500

The 3 months is computed from the October 1 to December 31