Question

Cullumber Company had the following transactions involving notes payable.

July 1, 2019 Borrows $50,500 from First National Bank by signing a 9-month, 8% note.
Nov. 1, 2019 Borrows $60,600 from Lyon County State Bank by signing a 3-month, 6% note.
Dec. 31, 2019 Prepares adjusting entries.
Feb. 1, 2020 Pays principal and interest to Lyon County State Bank.
Apr. 1, 2020 Pays principal and interest to First National Bank.

Prepare journal entries for each of the transactions.

Answer 1

Answer and Explanation:

The Journal entry is shown below:-

1. Cash Dr, $50,500

To Notes payable $50,500

(Being amount borrowed is recorded)

2. Cash Dr, $60,600

To Notes payable $60,600

(Being amount borrowed is recorded)

3. Interest expenses Dr, $2,020

($50,500 × 8%) × 6 ÷ 12

To Interest payable $2,020

(Being Interest expense payable is recorded)

4. Interest expenses Dr, $607

($60,600 × 6%) × 2 ÷ 12

To Interest payable $607

(Being accrued expenses is recorded)

5. Notes Payable Dr, $60,600

Interest Expenses Dr, $302

(($60,600 × 6%) × 1 ÷ 12

Interest payable Dr, $607

To Cash $61,509

(Being payment of principal and interest is recorded)

6. Notes Payable Dr, $50,500

Interest Expenses Dr, $1,010

(($50,500 × 8%) × 3 ÷ 12

Interest payable Dr, $2,020

To Cash $53,530

(Being payment of principal and interest is recorded)