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24 January, 13:53

Keesha Co. borrows $230,000 cash on December 1 of the current year by signing a 150-day, 12%, $230,000 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.

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  1. 24 January, 14:02
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    See explanation section

    Explanation:

    Requirement 1

    April 30 is the maturity date of the note.

    December 31 + January 31 + February 28 + March 31 + April 30 = 150 days.

    Therefore, the note will be matured in the April 30, next year.

    Requirement 2 & 3

    Current year Interest: December 1 - December 31 = 30 days interest = $230,000 * 12% * (30 : 360) = $2,300.

    Following year Interest: January 1 - April 30 = 120 days interest = $230,000 * 12% * (120 : 360) = $9,200.

    Total Interest = $11,500

    Requirement 4

    Journal Entries

    (a) Dec. 1 Cash Debit $230,000

    Notes payable Credit $230,000

    To record the borrow a loan by issuing a 150-day, 12% note.

    (b) Dec. 31 Interest Expense Debit $2,300

    Interest payable Credit $2,300

    To record the accrued interest expense on December 31 (Current year).

    (c) April 30 Notes payable Debit $230,000

    Interest payable Debit $2,300

    Interest Expense Debit $9,200

    Cash Credit $241,500

    To record the payment of the note at maturity.
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