Answer: the complete question is 1. Compute the accrued interest payable on December 31. 2. & 3. Prepare the journal entry to record the accrued interest expense at December 31 and payment of the note at maturity date
Notes Payable _____
Interest Expense______
Interest Payable______
Cash ____________.
Please see explanatory column for answer.
Step-by-step explanation:
To calculate accrued interest on December 31st
we use Interest = Principal x Rate x Time
where time = November 7 to December 31 = 54 days.
Interest = $150,000 x 10% x 54/360= 150,000 x 0.10 x 54/360= $2,250
Journal entry to record the accrued interest expense at December 31
Date Account Debit Credit
December 31 interest expense $2,250
Interest payable $2,250
b) To calculate payment of note at maturity date.
the borrowed cash will be paid in 90 days which means fromn November 7 of the previous year to Feb 5 of the next year = 90
using Interest = P XRX T
150,000 X 10% X 90/360= $3,750
Journal entry to record the payment of the note at maturity. which is on February 5th of the next year.
Date Account Debit Credit
February 5 Notes payable $150,000
Interest expense $1,500
Interest payable $2,250
Cash $153,750
Calculation: interest expense = $3,750- $2,250= $1500 This is because even though the total accrued interest was $3,750, only $2,250 was payable remaining $1,500 as the new interest expense for maturity date.