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9 November, 13:04

In November 1, Alan Company signed a 120-day, 10% note payable, with a face value of $27,000. Alan made the appropriate year-end accrual. What is the journal entry as of March 1 to record the payment of the note assuming no reversing entry was made? (Use 360 days a year.)

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  1. 9 November, 13:18
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    The journal entry as of march 1 will be:

    Debit Notes payable $27,000

    Debit Interest payable $450

    Debit Interest Expense $450

    Credit Cash $27,900

    Explanation:

    payable amount = $27,000

    Issued on 1st Nov

    Term = 120 days

    Maturity on 1st march.

    Days from 1st Nov to 31st Dec = 60 days

    Days from 1st Jan to 1st March = 60 days

    Total 61 + 59 = 120 days

    Interest expense from 1st Nov to 31st Dec

    = 27000 x 10% x 60/360

    = $ 450

    This $450 has been debited as Interest expense and Credited as Interest payable on Year end Accrual.

    Interest expense from 1st Jan to 1st March

    = 27000 x 10% x 60/360

    = $450

    One maturity, 1st March, cash payment would include $27000 (amount of notes payable) + $900 (interest amount = 27000 x 10% x 120/360).

    Total cash payment = $ 27,900

    This cash payment of $27,900 will be credited.

    Interest expense (1st jan to 1st march) of $450 will be debited.

    Interest payable (1st Nov to 31st Dec) of $450 will be debited, and

    Notes payable amount of $27,000 will also be debited.

    Therefore, The journal entry as of march 1 will be:

    Debit Notes payable $27,000

    Debit Interest payable $450

    Debit Interest Expense $450

    Credit Cash $27,900
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