Question

Indigo Corporation borrowed $58,800 on November 1, 2017, by signing a $59,910, 3-month, zero-interest-bearing note. Prepare Indigo’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

The Journal entries are as follows:

(i) 1st November, 2017

Cash A/c Dr. $58,800

Discount on notes payable A/c Dr. $1,110

To Notes payable $59,910

(To record the borrowings through notes)

(ii) 31st December, 2017

Interest expense A/c Dr. $740

To Discount on notes payable $740

(To record the adjusting entry for the interest through discount)

Workings:

Interest expense = (1,110 ÷ 3 months) × 2 months

= $740

(iii) 1st February, 2018

Interest expense A/c Dr. $370

To Discount on notes payable $370

(To record the adjusting entry for the interest through discount)

Workings:

Interest expense = (1,110 ÷ 3 months) × 1 months

= $370

(iv) 1st February, 2018

Interest payable A/c Dr. $59,910

To cash A/c $59,910

(To record the repayment of notes payable)