Question

On November 16, 2022, Freddie Finder's Inc. issues a short-term note payable in exchange for $12,000 cash. The note is payable in 120 days and bears a 3% annual interest rate. Please provide the necessary journal entries to record the issuance of the short-term note payable, including any adjustments for the accrued interest, if applicable.

Answer 1

To record the issuance of the short-term note payable and any applicable adjustments for accrued interest, make the following journal entries: Debit Cash and credit Notes Payable for the issuance, and debit Interest Expense and credit Interest Payable for the accrued interest at the end of the accounting period.

Step-by-step explanation:

To record the issuance of the short-term note payable and any applicable adjustments for accrued interest, we need to make the following journal entries:

1. Issuance of the short-term note payable:
   Debit: Cash ($12,000)
   Credit: Notes Payable ($12,000)
2. Accrued interest adjustment at the end of the accounting period (assumed to be December 31, 2022):
   Debit: Interest Expense ($100, $12,000 × 3% × 45/360)
   Credit: Interest Payable ($100)