Question

On November 1, 2018, New Morning Bakery signed a $200,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2019. New Morning Bakery records the appropriate adjusting entry for the note on December 31, 2018. What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1, 2019?

Answer 1

The amount of cash which will be paid back on May 1, 2019 is $206,000

Step-by-step explanation:

On November 1, 2018, the amount of $200,000 is borrowed at the 6% rate of interest and it will be paid on May 1, 2019. Therefore, the note is payable after 6 months. So, for 6 months the amount of interest is:

= Amount × Rate × Number of months/ 12

= $200,000 × 6% × 6/12

= $6,000

Therefore, the aggregate amount payable would be:

= Amount + Interest

= $200,000 + $6,000

= $206,000