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6 October, 06:21

Sheffield borrowed $701000 on October 1, 2017 and is required to pay $721000 on March 1, 2018. What amount is the note payable recorded at on October 1, 2017 and how much interest is recognized from October 1 to December 31, 2017?

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  1. 6 October, 08:30
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    On October 01, 2017

    The amount actually borrowed that is $ 701,000 will be recorded as liability/note payable on october 01, 2017. The following accounting entry will be passed

    Debit Cash Asset $ 701,000

    Credit Note payable $ 701,000

    Interest recognized from October 1 to December 31, 2017

    The premium amount paid on redemption will be recorded as interest over the period of time. The interest amount is

    Interest = 721,000 - 701,000 = $ 20,000

    So this above calculated expense will be recognized as an expense over loan period.
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