Question

Sweet, Inc. issued a $140,000, 4-year, 12% note at face value to Flint Hills Bank on January 1, 2017, and received $140,000 cash. The note requires annual interest payments each December 31.

Required:
Prepare Coldwell's journal entry record:

a. the issuance of the note
b. the December 31 interest payment.

Answer 1

The double entry is given below alongwith its explanation

Step-by-step explanation:

On January 1, 2017, the receipt of money by the issuance of the 12% note would be recorded as increase in liability which would be credited and increase in cash receipt is increase in asset which must be debited. The entry to record the issuance of note is as under:

Dr Cash $140,000

Cr Loan Note $140,000

On December 31, 2017, the Payment of interest of 12% on note would be recorded as increase in expense which must be debited and decrease in cash due to payment is decrease in asset and it must be credited. The entry to record the payment of interest is as under:

Dr Interest Expense $16,800

Cr Cash Account $16,800