Question

On November 1, 2021, New Morning Bakery signed a $207,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2022. New Morning Bakery records the appropriate adjusting entry for the note on December 31, 2021. What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1, 2022?

Answer 1

$213,210

Step-by-step explanation:

The computation of the amount needed to pay back is shown below:

= Note payable + interest expense for 2 months + interest expense for 4 months

where,

Note payable is $207,000

Interest expense for 2 months is

= $207,000 × 6% × 2 months ÷ 12 months

= $2,070

The 2 months is calculated from Nov to Dec 31

And, the interest expense for 4 months is

= $207,000 × 6% × 4 months ÷ 12 months

= $4,140

The 4 months is calculated from Dec 31 to May 1

So, the total amount needed is

= $207,000 + $2,070 + $4,140

= $213,210