Blossom Company had the following transactions involving notes payable. July 1, 2020 Borrows $61,000 from First National Bank by signing a 9-month, 8% note. Nov. 1, 2020 Borrows $73,200 from Lyon County State Bank by signing a 3-month, 6% note. Dec. 31, 2020 Prepares adjusting entries. Feb. 1, 2021 Pays principal and interest to Lyon County State Bank. Apr. 1, 2021 Pays principal and interest to First National Bank. Prepare journal entries for each of the transactions.

Answer and Explanation:

According to the scenario, journal entries of the given data are as follow:-

Journal Entries

On July 1

Cash A/c Dr. $61,000

To 8% Notes payable A/c $61,000

(Being the cash borrowed from first national bank is recorded)

For recording this we debited the cash as it increases the assets and credited the note payable as it also increased the liabilities

On Nov 1

Cash A/c Dr. $73,200

To 6% Notes payable A/c $73,200

(Being the cash borrowed from first national bank is recorded)

For recording this we debited the cash as it increases the assets and credited the note payable as it also increased the liabilities

On Dec 31

Interest expense { (61,000 * 8%) * 6 : 12} A/c Dr. $2,440

To Interest payable A/c $2,440

(Being interest expense is recorded)

For recording this we debited the interest expense as it increase the expenses and at the same time it also increased the liabilities so interest payable is credited

On Dec 31

Interest expense (73,200 * 6%) * 2 : 12 A/c Dr. $732

To Interest payable A/c $732

(Being interest expense is recorded)

For recording this we debited the interest expense as it increase the expenses and at the same time it also increased the liabilities so interest payable is credited

On Feb 1

Notes payable A/c Dr. $73,200

Interest expenses A/c (732 : 2) Dr. $366

Interest payable A/c Dr. $732

To Cash A/c $74,298

(Being cash is paid)

It decrease the liabilities, it increased the expenses so the respective accounts are debited and since cash is paid which reduced the assets so this account is credited

On April 1

Notes payable A/c Dr. $61,000

Interest expenses A/c ($2,440 : 2) Dr. $1,220

Interest payable A/c Dr. $2,440

To Cash A/c $64,660

(Being cash is paid)

It decrease the liabilities, it increased the expenses so the respective accounts are debited and since cash is paid which reduced the assets so this account is credited