Keesha co. borrows $200,000 cash on november 1 of the current year by signing a 90-day, 9%, $200,000 note. 1. on what date does this note mature? 2. & 3. what is the amount of interest expense in the current year and the following year from this note? 4. 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.

Explanation:

1. The maturing date of note will be 30 January 2019

( 29 days in November + 31 Days in December and 30 Days in January)

2. The interest expense would be

On this year:

= Principal × rate of interest × number of days ÷ (total number of days in a year)  

= $200,000 × 9% × (60 days ÷ 360 days)

= $3,000

( 29 days in November + 31 Days in December)

3. On next year:

= Principal × rate of interest × number of days ÷ (total number of days in a year)  

= $200,000 × 9% × (30 days ÷ 360 days)

= $1,500

(30 Days in January)

We assume 360 days in a year.  

4. (A) Cash A/c Dr $200,000  

             To Notes payable A/c $200,000  

(Being note is issued for cash)

(B) Interest expense A/c Dr $3,000

          To Interest payable A/c $3,000

(Being accrued interest adjusted)

(C) Interest expense A/c Dr $1,500

    Interest payable A/c Dr $3,000

    Notes payable A/c Dr $200,000

                             To Cash A/c $204,500

(Being cash is paid on maturity)

answer; a large down payment,a longer term loan, would result in a lower monthly payment;