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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

JOURNAL ENTRIES (NOTE ISSUED FOR BANK LOAN) Prepare general journal entries for the following transactions:

Sept. 15 Borrowed $7,000 cash from the bank, giving a 60-day non- interest- bearing note. The note is discounted 8 % by the bank.
Nov. 14 Paid the $7,000 note, recognizing the discount as interest expense.

To determine

Prepare the journal entries to record the following transactions.

Explanation

Note Payable:

Note payable is an obligation of the organization to pay to its creditors in near future for the benefits received that carries some interest.

Prepare journal entry to record issuance of notes payable.

DateAccount titles and ExplanationDebitCredit
September 15Cash$6,906.67 
 Discount on Notes payable$93.33 
     Notes payable $7,000
 (To record issuance of notes payable)  

Table (1)

Working note:

(1) Calculate discount on bonds payable.

Discount on bonds payable =Notes payable ×Interest rate×Time period=$7,000×8%×60360=$93

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