Question

On November 1. Bahama Cruise Lines borrows $2.6 million and issues a six-month. 6% note payable. Interest is payable at maturity. Record the issuance of the note and the appropriate adjustment for interest expense at December 31, the end of the reporting period.

Answer 1

Answer and Explanation:

The journal entries are shown below:

1. Cash Dr $2,600,000

To Note payable $2,600,000

(Being the issuance of the note is recorded)

For recording this we debited the cash as it increased the assets and credited the note payable as it also increased the liabilities

2. Interest expense $26,000

To interest payable $26,000

(Being the interest expense is recorded)

For recording this we debited the interest expense as it increased the expenses and credited the note payable as it also increased the liabilities

The computation is shown below:

= $2,600,000 × 6% × 2 months ÷ 12 months

= $26,000