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15 March, 03:54

Moss County Bank agrees to lend the Ivanhoe Company $365000 on January 1. Ivanhoe Company signs a $365000, 6%, 9-month note. The entry made by Ivanhoe Company on January 1 to record the proceeds and issuance of the note is

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  1. 15 March, 04:12
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    Ivanhoe Company on January 1 would record the proceeds and issuance of the note as follows:

    Debit Cash $365,000

    Credit Notes payable $365,000

    (To recognize notes payable to Moss County Bank)

    Explanation:

    Note payable is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

    Interest expense on the notes is calculated as: Principal x Interest Rate x Time

    In this case, the total interest expense to Ivanhoe Company is $365,000 x 6%/12 x 9 months = $16,425.

    Monthly interest expense to the Company over the 9-month period is therefore $16,425 / 9 months = $1,825.
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