26 August, 01:52

# on september 30 world co. borrowed \$1,000,000 on a 9% note payable. World paid the first of four quarterly payments of \$264,200 when due on December 30. Provide the appropriate adjusting entry for the note at December 31

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1. 26 August, 04:14
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Answer: The appropriate entry for the note payable as at 31 December is \$758,300.

Explanation: The interest expense on the note is calculated as: \$1,000,000 * 9/12 * 3/12 months = \$22,500. The amount paid for the first of the quarterly payment was \$264,200. Therefore, note principal repayment can be derived by subtracting the interes accrued from the actual payment, that is, \$264,200 minus \$22,500 = \$241,700. To get the principal note balance, you would subtract \$241,700 from \$1,000,000, leaving a balance of \$758,300.

The appropriate adjusting entries would be:

On 30 September: Debit Cash \$1,000,000, Credit Note payable (current liabilities) \$1,000,000

Monthly interest accrual: Dr Interest expense \$7,500 Credit Interest payable \$7,500

On first payment of the quarter, the entity would raise these entries: Dr Interes payable \$22,500, Dr note payable (current liabilities) \$241,700 Credit Cash \$264,200.