Question

On April 1, Holton Company borrows $100,000 from West Bank by signing a 6-month, 6%, interest-bearing note.

Prepare the necessary entries below associated with the note payable on the books of Holton Company.
(a) Prepare the entry on April 1 when the note was issued.
(b) Prepare any adjusting entries necessary on June 30 in order to prepare the semiannual financial statements. Assume no other interest accrual entries have been made.

Answer 1

A. Dr Cash $100,000

Cr Notes Payable $100,000

B. Dr Interest expense $1,500

Cr Interest Payable $1,500

Step-by-step explanation:

a Preparation of the entry on April 1 when the note was issued.

Dr Cash $100,000

Cr Notes Payable $100,000

(To record note issued)

B. Preparation of any adjusting entries necessary on June 30 in order to prepare the semiannual financial statements

Dr Interest expense $1,500

Cr Interest Payable $1,500

($100,000 x .06 x 3/12)