On October 1, Eder Fabrication borrowed $69 million and issued a nine-month promissory note. Interest was discounted at issuance at a 11% discount rate. Prepare the journal entry for the issuance of the note and the appropriate adjusting entry for the note at December 31, the end of the reporting period.

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Business

Jaelyn Horn

5 July, 15:39

On October 1, Eder Fabrication borrowed $69 million and issued a nine-month promissory note. Interest was discounted at issuance at a 11% discount rate. Prepare the journal entry for the issuance of the note and the appropriate adjusting entry for the note at December 31, the end of the reporting period.

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Hugh · Answer 1

The journal entries which is to be recorded for the issuance as well as the adjusting entry is as:

Explanation:

The journal entries which is to be recorded for the issuance as well as the adjusting entry is shown below:

For issuance of notes payable as:

Cash A/c ... Dr $69 million

Notes Payable A/c ... Cr $69 million

Being record the purchase of the inventory through issuing the notes payable

For adjusting entry on December 31, is as:

Interest Expense A/c ... Dr $1,897,500

Interest Payable A/c ... Cr $1,897,500

Being record the accrued interest payable for three months

Working Note:

Interest expense = $69,000,000 * 11% * 3 / 12

= $1,897,500

Note: 3 Months (from October to December 31)