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14 June, 23:04

On December 16, 2019, Carboy, Inc., borrows $120,000 cash from Third National Bank at 9 percent annual interest. The note is due in 45 days. At December 31, 2019, Carboy records any unpaid interest with an adjusting entry. On January 30, 2020, Carboy pays the principal and interest owed on the bank note. Prepare the January 30 entry by Carboy for the payment (maturity) of the note plus interest.

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  1. 14 June, 23:25
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    The January 30 entry:

    Debit Interest Payable $450

    Debit Interest expense $900

    Debit Bank note Payable $120,000

    Credit Cash $121,350

    Explanation:

    Assuming 1 year interest is 360 day. The amount Interest expense Carboy, Inc. records at December 31, 2019:

    ($120,000 x 9% x 15) / 360 = $450

    The adjusting entry:

    Debit Interest expense $450

    Credit Interest Payable $450

    On January 30, 2020, the amount of interest expense from 01 January 2020 to 30 January 2020:

    ($120,000 x 9% x 30) / 360 = $900

    Carboy pays the principal and interest owed on the bank note. The entry by Carboy for the payment (maturity) of the note plus interest:

    Debit Interest Payable $450

    Debit Interest expense $900

    Debit Bank note Payable $120,000

    Credit Cash $121,350
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