Question

Lewis Company had the following transactions involving notes payable.

July 1, 2015 Borrows $50,500 from First National Bank by signing a 9-month, 8% note.
Nov. 1, 2015 Borrows $61,200 from Lyon County State Bank by signing a 3-month, 6% note.
Dec. 31, 2015 Prepares adjusting entries.
Feb. 1, 2016 Pays principal and interest to Lyon County State Bank.
Apr. 1, 2016
Pays principal and interest to First National Bank.
Prepare journal entries for each of the transactions.

Answer 1

Answer and Explanation:

The journal entries are shown below

1. Cash Dr $50,500

To Note payable $50,500

(Being the amount borrowed is recorded)

2. Cash Dr $61,200

To Note payable $61,200

(Being the amount borrowed is recorded)

3. Interest expense $2,020

To Interest payable $2,020

(Being the interest expense is recorded)

The computation is shown below:

= $50,500 × 8% × 6 months ÷ 12 months

= $2,020

4. Interest expense $612

To Interest payable $612

(Being the interest expense is recorded)

The computation is shown below:

= $61,200 × 6% × 2 months ÷ 12 months

= $612

5. Note payable $61,200

Interest expense $306

Interest payable $612

To Cash $62,118 ($61,200 + $918)

(Being the principal and the interest is recorded)

= $61,200 × 6% × 3 months ÷ 12 months

= $2,020

5. Note payable $50,500

Interest expense $1,010

Interest payable $2,020

To Cash $62,118 ($50,500 + $3,030)

(Being the principal and the interest is recorded)

= $50,500 × 8% × 9 months ÷ 12 months

= $3,030