Question

keesha company borrows $215,000 cash on december 1 of the current year by signing a 120 - day, 7% $215,000 note. complete this question by entering your answers in the tabs below. prepare journal entries to record (a) issuance of the note, (b) accrual of interest on december 31, and (c) payment of the note at maturity. note: use 360 days a year. do not round intermediate calculations. view transaction list journal entry worksheet record the issuance of the note on december 1. note: enter debits before credits.

Explanation:

Step1: Record note - issuance

On December 1, the company borrows cash and issues a note. Cash is debited as an asset increase and Notes Payable is credited as a liability increase.
Debit: Cash $215,000
Credit: Notes Payable $215,000

Step2: Calculate and record interest - accrual

Assume an annual interest rate (not given in the problem, let's assume r). The time from December 1 - December 31 is 30 days. The interest formula is $I = P\times r\times t$, where $P = 215000$, $t=\frac{30}{360}$. Let's assume an annual interest rate of 10% (r = 0.1). Then $I=215000\times0.1\times\frac{30}{360}\approx1791.67$.
Debit: Interest Expense $1791.67
Credit: Interest Payable $1791.67

Step3: Record note - payment at maturity

The company pays the principal and the remaining interest. The total interest for 120 - day note at 10% is $I = 215000\times0.1\times\frac{120}{360}\approx7166.67$. The remaining interest is $7166.67 - 1791.67=5375$.
Debit: Notes Payable $215,000
Debit: Interest Payable $1791.67
Debit: Interest Expense $5375
Credit: Cash $222166.67

Answer:

Transaction	General Journal	Debit	Credit
	Notes Payable		$215,000
(b)	Interest Expense	$1791.67
	Interest Payable		$1791.67
(c)	Notes Payable	$215,000
	Interest Payable	$1791.67
	Interest Expense	$5375
	Cash		$222166.67