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30 September, 05:57

Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $40.3 million cash on October 1, 2021, to provide working capital for anticipated expansion. Precision signs a one-year, 8% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end. Required: 1. Prepare the journal entries on October 1, 2021, to record the issuance of the note

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  1. 30 September, 06:09
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    The journal entry to record the issuance of the promissory note:

    October 1, 2021, loan obtained from Midwest Bank

    Dr Cash 40,300,000

    Cr Notes payable 40,300,000

    By December 31, 2021, interests will have accrued. Assuming a 365 day year, accrued interest for 3 months = $40,300,000 x 8% x 82/365 = $724,295.89

    December 31, 2021, accrued interest on bank loan

    Dr Interest expense 724,295.89

    Cr Interest payable 724,295.89
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