C.S. Lewis Company had the following transactions involving notes payable. July 1, 2014 Borrows $50,000 from…
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Question “C.S. Lewis Company had the following transactions involving notes payable. July 1, 2014 Borrows $50,000 from…”
C.S. Lewis Company had the following transactions involving
notes payable.
July 1, 2014 | Borrows $50,000 from First National Bank by signing a 9-month, 8% note. | |
Nov. 1, 2014 | Borrows $60,000 from Lyon County State Bank by signing a 3-month, 6% note. | |
Dec. 31, 2014 | Prepares adjusting entries. | |
Feb. 1, 2015 | Pays principal and interest to Lyon County State Bank. | |
Apr. 1, 2015 | Pays principal and interest to First National Bank. |
Prepare journal entries for each of the transactions.
(Credit account titles are automatically indented when
amount is entered. Do not indent manually.)
Answer
Notes:Notes are promissory notes that an entity issues for a future amount. Because a fixed amount must be paid by a specific date, notes payable (or simply notes) are shown in the books as a liability.
Types of notes: Notes may become due at any time after the balance sheet date. Short-term notes are those that become due within one year of the balance sheet date and are listed under current liabilities. The notes that become due within a year of the balance sheet date are also considered long-term notes, and are therefore shown under non-current liabilities.
Accounting for Notes Notes may be issued upon acquisition of assets or loans. When such notes are issued, credit is given to the notes payable.
Notes typically carry a fixed percentage interest. This interest is due every month during the note’s term. Accrued interest is the amount that has been accrued but not paid at a balance sheet date. Accrual accounting records accrued interest in the books immediately it occurs. This is done by debiting an interest expense account, and crediting an interest payable account.
July 1, 2014. The company borrows $50,000 from the first national bank. They sign a 9-month note at 8%. As shown below, prepare the entry.
To record the amount borrowed from the bank and the issue of the notes, prepare the following entry.
To record interest expense accrued, prepare the following entry:
As shown below, prepare the entry.
As shown below, prepare the entry.
Ans:
Conclusion
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