Question

A business issued a 120-day, 5% note for $84,000 to a creditor on account. Journalize the entries to record (a) the issuance of the note and (b) the payment of the note at maturity, including interest. Assume a 360-day year.

Answer 1

a. Issuance of note:

Date Account title Debit Credit

XX-XX Accounts Payable $84,000

Notes Payable $84,000

b. The payment of the note at maturity, including interest. Assume a 360-day year.

Interest payment = 84,000 * 5% * 120/360

= $1,400

Date Account title Debit Credit

XX-XX Note Payable $84,000

Interest payable $1,400

Cash $85,400