Question

Upland Company borrowed $40,000 on November 1, 2017, by signing a $40,000, 9%, 3-month note. Prepare Upland’s November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Journal entries for Upland Company's note payable include the initial borrowing, the year-end adjusting, and the payment at the note's maturity, with respective interest accruals and repayment on specified dates.

Step-by-step explanation:

The student's question pertains to the accounting for a short-term note payable issued by Upland Company. Here we will cover three journal entries required for the initial borrowing, year-end adjusting, and the note's maturity.

November 1, 2017 Entry:

• Debit Cash $40,000
• Credit Notes Payable $40,000

This entry records the proceeds of the note.

December 31, 2017 Adjusting Entry:

• Debit Interest Expense $300 ([$40,000 x 9%] x [2/12 months])
• Credit Interest Payable $300

This entry accounts for the interest accrued for two months by year-end.

February 1, 2018 Entry:

• Debit Notes Payable $40,000
• Debit Interest Payable $300 (Previous accrued interest)
• Debit Interest Expense $300 ([$40,000 x 9%] x [1/12 months] for January)
• Credit Cash $40,600

This entry reflects the repayment of the note and the total interest for three months upon its maturity.

Answer 2

cash 40,000 debit

note payable 40,000 credit

--to record signing of note----

interest expense 300 debit

interest payable 300 credit

--to record accrued interest----

note payable 40,000 debit

interest payable 300 debit

interest expense 600 debit

cash 40,900 credit

--to record honor of the note---

Step-by-step explanation:

when signing the note we receive the cash and delcare the liability

at December 31th

we recognzie the accrued interest: for the month

we need to convert the annual rate to monthly: 0.09/12 = 0.0075

40,000 x 0.0075 = 300

at payment of the note, we write-off the note

we pay the full interest:

300 per month x 3 month = 900

we already accrued one so the expense will be for 600