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27 December, 07:01

Stellar Company borrowed $37,200 on November 1, 2020, by signing a $37,200, 9%, 3-month note. Prepare Stellar's November 1, 2020, entry; the December 31, 2020, annual adjusting entry; and the February 1, 2021, entry. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

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  1. 27 December, 07:03
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    The journal entries are shown below:

    (A) Cash A/c Dr $37,200

    To Notes payable A/c $37,200

    (Being note is issued for cash)

    (B) Interest expense A/c Dr $558

    To Interest payable A/c $558

    (Being accrued interest adjusted)

    The interest expense would be

    = Principal * rate of interest * number of months : (total number of months in a year)

    = $37,200 * 9% * (2 months: 12 months)

    = $558

    The two months is calculated from November 1 to December 31

    (C) Interest expense A/c Dr $279

    Interest payable A/c Dr $558

    Notes payable A/c Dr $37,200

    To Cash A/c $38,037

    (Being cash is paid on maturity)

    The computation is shown below

    = Principal * rate of interest * number of months : (total number of months in a year)

    = $37,200 * 9% * (1 months: 12 months)

    = $279

    The two months is calculated from the December 31 to February 1
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