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7 July, 17:16

On January 1, 2021, Nantucket Ferry borrowed $14,000,000 cash from BankOne and issued a four-year, $14,000,000, 6% note. Interest was payable annually on December 31. Prepare the journal entries for both firms to record interest at December 31, 2021.

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  1. 7 July, 17:32
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    If Interest is not Paid yet

    Nantucket Ferry

    Dr. Interest Expense $840,000

    Cr. Interest payable $840,000

    BankOne

    Dr. Interest receivable $840,000

    Cr. Interest Income $840,000

    If Interest is Paid

    Nantucket Ferry

    Dr. Interest Expense $840,000

    Cr. Cash $840,000

    BankOne

    Dr. Cash $840,000

    Cr. Interest Income $840,000

    Explanation:

    Amount of interest is the expense for Nantucket Ferry and Income for the BankOne on the bond.

    As per given data

    Amount borrowed = $14,000,000

    Coupon rate = 6%

    Interest in paid on and received on the bnd is calculated by using the face value and coupon rate of the bond.

    Coupon Payment = $14,000,000 x 6% = $840,000

    $840,000 will be paid annually to the Bank one.
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