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21 February, 06:48

A business issued a 90-day, 9% note for $70,000 to a creditor on account. Illustrate the effects on the accounts and financial statements of recording (a) the issuance of the note and (b) the payment of the note at maturity, including interest. If no account or activity is affected, select "No effect" from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts. a. Illustrate the effects on the accounts and financial statements of recording the issuance of the note.

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  1. 21 February, 07:13
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    The computation is shown below:

    Explanation:

    The journal entries are shown below:

    a. Account payable $70,000

    To Notes payable $70,000

    (Being the issuance of the note is recorded)

    b. Note payable $70,000

    Interest expense $1,575

    To Cash $71,575

    (Being the payment of the note at maturity date including interest is recorded)

    The computation is shown below:

    = $70,000 * 9% * 90 days : 360 days

    = $1,575

    We assume 360 days in a year

    Now the effects on the accounts and the financing statement for issuance of the note is shown below:

    Balance sheet

    Assets = Liabilities + Stockholder equity Income statement cash flow statement

    No effect = Account payable - $52,000 + No effect No effect + no effect

    Note payable + $52,000
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