Prepare the
Explanation of Solution
Notes payable: Notes Payable is a written promise to pay a certain amount on a future date, with the certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs.
Prepare the journal entry to record issuance of notes as follows:
Date | Account titles and Explanation | Post ref. | Debit | Credit |
January 1, 2019 | Cash | $100,000 | ||
Notes payable | $100,000 | |||
(To record issuance of notes payable) |
Table (1)
To record issuance of notes payable:
- Cash is a current asset, and it is increased. Therefore, debit cash account for $100,000.
- Notes payable is a short term liability, and it is increased. Therefore, credit notes payable account for $100,000.
Journalize the first note payment on December 31, 2019, as follows:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
December 31, 2019 | Notes Payable | 22,523 (2) | ||
Interest Expense | 7,000 (1) | |||
Cash | 29,523 | |||
(To record the first payment of bonds payable with due interest) |
Table (2)
To record the first payment of bonds payable with due interest:
- Notes Payable is a liability and it is decreased. Therefore, it is debited for $22,523.
- Interest expense is a component of
stockholders’ equity and decreased it, so debit interest expense for $7,000. - Cash is an asset and payment of interest expense decreases cash, so it is credited for $29,523.
Working Notes:
Interest expense for one year is computed as below:
Calculate the portion of notes payable paid.
Interest expense = $7,000
Four equal payments = $29,523
Journalize the second note payment on December 31, 2020, as follows:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
December 31, 2020 | Notes Payable | 24,100 (4) | ||
Interest Expense | 5,423 (3) | |||
Cash | 29,523 | |||
(To record the second payment of bonds payable with due interest) |
Table (3)
To record the second payment of bonds payable with due interest:
- Notes Payable is a liability and it is decreased. Therefore, it is debited for $24,100.
- Interest expense is a component of stockholders’ equity and decreased it, so debit interest expense for $5,423.
- Cash is an asset and payment of interest expense decreases cash, so it is credited for $29,523.
Working Notes:
Interest expense for second year is computed as below:
Calculate the portion of notes payable paid.
Interest expense = $5,423
Four equal payments = $29,523
Journalize the third note payment on December 31, 2021, as follows:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
December 31, 2021 | Notes Payable | 25,787 (6) | ||
Interest Expense | 3,736 (5) | |||
Cash | 29,523 | |||
(To record the third payment of bonds payable with due interest) |
Table (4)
To record the third payment of bonds payable with due interest:
- Notes Payable is a liability and it is decreased. Therefore, it is debited for $25,787.
- Interest expense is a component of stockholders’ equity and decreased it, so debit interest expense for $3,736.
- Cash is an asset and payment of interest expense decreases cash, so it is credited for $29,523.
Working Notes:
Interest expense for third year is computed as below:
Calculate the portion of notes payable paid.
Interest expense = $3,736
Four equal payments = $29,523
Journalize the fourth note payment on December 31, 2022, as follows:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
December 31, 2022 | Notes Payable | 27,590 (8) | ||
Interest Expense | 1,933 (7) | |||
Cash | 29,523 | |||
(To record the fourth payment of bonds payable with due interest) |
Table (5)
To record the fourth payment of bonds payable with due interest:
- Notes Payable is a liability and it is decreased. Therefore, it is debited for $27,590.
- Interest expense is a component of stockholders’ equity and decreased it, so debit interest expense for $1,933.
- Cash is an asset and payment of interest expense decreases cash, so it is credited for $29,523.
Working Notes:
Interest expense for fourth year is computed as below:
Calculate the portion of notes payable paid.
Interest expense = $1,933
Four equal payments = $29,523
Want to see more full solutions like this?
Chapter 14 Solutions
Principles of Financial Accounting.
- Use information from EA10. Compute the interest expense due when Barkers honors the note. Show the journal entry to recognize payment of the short-term note on December 4.arrow_forwardSCHEDULE OF ACCOUNTS RECEIVABLE Based on the information provided in Problem 10-12B, prepare a schedule of accounts receivable for Paul Jackson as of April 30, 20--. Verify that the accounts receivable account balance in the general ledger agrees with the schedule of accounts receivable total.arrow_forwardSCHEDULE OF ACCOUNTS RECEIVABLE From the accounts receivable ledger shown, prepare a schedule of accounts receivable for Gelph Co. as of November 30, 20--.arrow_forward
- SCHEDULE OF ACCOUNTS RECEIVABLE Based on the information provided in Problem 10-12A, prepare a schedule of accounts receivable for Sourk Distributors as of March 31, 20--. Verify that the accounts receivable account balance in the general ledger agrees with the schedule of accounts receivable total.arrow_forwardAccess the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Determine the specific citation for each of the following items:1. What is the balance sheet classification for a note payable due in six months that was used to purchase abuilding?arrow_forwardLundquist Company received a 60-day, 9% note for $28,000, dated July 23, from a customer on account.a. Determine the due date of the note.b. Determine the maturity value of the note.c. Journalize the entry to record the receipt of the payment of the note at maturity.arrow_forward
- Prefix Supply Company received a 60-day, 4% note for $46,000 dated July 12 from a customer on account. Required: a. Determine the due date of the note. b. Determine the maturity value of the note. Assume a 360-day year. c. Journalize the entry to record the receipt of the payment of the note at maturity. Refer to the Chart of Accounts for exact wording of account titles. CHART OF ACCOUNTS Prefix Supply Company General Ledger ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 129 Allowance for Doubtful Accounts 132 Notes Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY…arrow_forwardLundquist Company received a 60-day, 9% note for $21,500, dated July 23, from a customer on account. Required: a)Determine the due date of the note. b)Determine the maturity value of the note. Assume 360 days in a year. c)Journalize the entry to record the receipt of the payment of the note at maturity. Refer to the Chart of Accounts for exact wording of account titles.arrow_forwardPresented below are three receivables transactions.Indicate whether these receivables are reported as accounts receivable, notes receivable, or other receivables on a balance sheet. (a) Advanced $10,000 to an employee. select an account title Accounts ReceivableNotes ReceivableOther Receivables (b) Received a promissory note of $34,000 for services performed. select an account title Accounts ReceivableNotes ReceivableOther Receivables (c) Sold merchandise on account for $60,000 to a customer.arrow_forward
- Prefix Supply Company received a 120-day, 8% note for $450,000, dated April 9, from a customer on account.a. Determine the due date of the note.b. Determine the maturity value of the note.c. Journalize the entry to record the receipt of the payment of the note at maturity.arrow_forwardLundquist Company received a 60-day, 6% note for $37,500, dated July 23, from a customer on account. Required: a. Determine the due date of the note. b. Determine the maturity value of the note. Assume 360 days in a year. c. Journalize the entry to record the receipt of the payment of the note at maturity. Refer to the Chart of Accounts for exact wording of account titles. ASSETS 110 Cash 111 Petty Cash 120 Accounts Receivable 129 Allowance for Doubtful Accounts 132 Notes Receivable 141 Merchandise Inventory 145 Office Supplies 146 Store Supplies 151 Prepaid Insurance 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 310 Owner, Capital 311 Owner, Drawing 312 Income Summary REVENUE 410…arrow_forwardOn September 1, Knack Company signed a $50,000, 90-day, 5% note payable with Central Savings Bank. What is the journal entry that should be recorded by Knack upon payment of the note at maturity?arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,College Accounting, Chapters 1-27 (New in Account...AccountingISBN:9781305666160Author:James A. Heintz, Robert W. ParryPublisher:Cengage Learning
- Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:CengageFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,