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6 March, 14:48

Branch Corporation issued $5 million of commercial paper on March 1 on a nine-month note. Interest was discounted at issuance at a 12% discount rate. Prepare the journal entry for the issuance of the commercial paper and its repayment at maturity. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

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  1. 6 March, 17:02
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    Journal Entry

    March 1

    Dr. Cash $4,550,000

    Dr. Discount on Note Payable $450,000

    Cr. Note payable $5,000,000

    December 1

    Dr. Interest Expense $450,000

    Cr. Discount on Note Payable $450,000

    Dr. Note payable $5,000,000

    Cr. Cash $5,000,000

    Explanation:

    Note payable is document which is payable after a specific period of time.

    Note Payable is recorded at the present value of the note face value. We need to discount the face value of the note first.

    Interest on the bond = $5,000,000 x 12% x 9/12 = $450,000

    On December 31 Interest expense will be recorded and Payment of Note is made.
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