On October 1, Eder Fabrication borrowed $69 million and issued a nine-month promissory note. Interest was discounted at issuance at a 11% discount rate. Prepare the journal entry for the issuance of the note and the appropriate adjusting entry for the note at December 31, the end of the reporting period.

Question

Jaelyn Brandt

Business

2 February, 21:12

On October 1, Eder Fabrication borrowed $69 million and issued a nine-month promissory note. Interest was discounted at issuance at a 11% discount rate. Prepare the journal entry for the issuance of the note and the appropriate adjusting entry for the note at December 31, the end of the reporting period.

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Makenna Boyle · Answer 1

The journal entries which is to be recorded for the issuance as well as the adjusting entry is as:

Explanation:

The journal entries which is to be recorded for the issuance as well as the adjusting entry is shown below:

For issuance of notes payable as:

Cash A/c ... Dr $69 million

Notes Payable A/c ... Cr $69 million

Being record the purchase of the inventory through issuing the notes payable

For adjusting entry on December 31, is as:

Interest Expense A/c ... Dr $1,897,500

Interest Payable A/c ... Cr $1,897,500

Being record the accrued interest payable for three months

Working Note:

Interest expense = $69,000,000 * 11% * 3 / 12

= $1,897,500

Note: 3 Months (from October to December 31)