Answer:
July 1, 2014:
Debit Cash $50,000
Credit Note payable $50,000
(To record note payable - 9-month, 8% note)
Nov. 1, 2014:
Debit Cash $60,000
Credit Note payable $60,000
(To record note payable - 3-month, 6% note)
Dec. 31, 2014:
Debit Interest expense $2,000
Credit Interest payable $2,000
(To record 6 months interest payable on 9-month, 8% note)
Debit Interest expense $600
Credit Interest payable $600
(To record 2 months interest payable on 3-month, 6% note)
Feb. 1, 2015:
Debit Note payable $60,000
Debit Interest payable $900
Credit Cash $60,900
(To record payment of principal & interest to Lyon County State Bank)
Apr. 1, 2015:
Debit Note payable $50,000
Debit Interest payable $3,000
Credit Cash $53,000
(To record payment of principal & interest to First National Bank)
Step-by-step explanation:
Note is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.
Interest expense on the note is calculated as: Principal x Interest Rate x Time
First National Bank Note:
The total interest expense is $50,000 x 8%/12 x 9 months = $3,000.
Monthly interest expense is therefore $3,000 / 9 months = $333.33.
Total interest as at December 31, 2014 (July 1 - Dec 31): $333.33 x 6 months = $2,000.
Lyon County State Bank Note:
The total interest expense is $60,000 x 6%/12 x 3 months = $900.
Monthly interest expense is therefore $900 / 3 months = $300.
Total interest as at December 31, 2014 (Nov. 1 - Dec 31): $300 x 2 months = $600.