1(a)
Notes payable
Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs.
To Prepare: the
1(a)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
October 1 | Cash | 41,000,000 | |
Notes Payable | 41,000,000 | ||
(To record the issuance of notes payable) |
(Table 1)
Explanation of Solution
- Cash is an asset and it has increased the value of the asset, so debit it for $ 41,000,000.
- Note Payable is a liability and it has increased the value of the liability, so credit it for $ 41,000,000.
1(b)
Notes Receivable:
Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.
To Prepare: the journal entries on October1, 2018 for notes receivable of Company M.
1(b)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
October 1 | Notes Receivable | 41,000,000 | |
Cash | 41,000,000 | ||
(To record the acceptance of the note receivable) |
(Table 2)
Explanation of Solution
- Cash is an asset and it has decreased the value of the asset, so debit it for $ 41,000,000.
- Note Receivable is an asset and it has increased the value of the asset, so credit it for $ 41,000,000
2(a)
Notes payable
Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs.
To Record: the
2(a)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
December 31 | Interest Expense (a) | 922,500 | |
Interest Payable (a) | 922,500 | ||
(To record the interest accrued, but not paid) |
(Table 3)
Explanation of Solution
Working Notes:
- Interest Expense is a component of
stockholder’s equity and it has decreased the value of stockholder’s equity, so debit interest expense for $ 922,500. - Interest payable is a liability and it has increased the value of liability, so credit it for $ 922,500.
Notes:
In this case there is an accrual of interest from October to December (3 months).
2(b)
Notes Receivable:
Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.
To Record: the adjustment entries on December 31, 2018 for notes receivable of Company M.
2(b)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
December 31 | Interest Receivable (b) | 922,500 | |
Interest Revenue (b) | 922,500 | ||
(To record interest earned, but not received) |
(Table 4)
Explanation of Solution
Working Notes:
- Interest Revenue is a component of stockholder’s equity and it increases the stockholder’s equity, so credit interest revenue for $ 922,500.
- Interest receivable is an asset and it decreases the value of the asset, so debit interest receivable for $ 922,500.
Note:
In this case there is an interest accrued from the month of October to December (3 months).
3(a)
Notes payable
Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs.
To Prepare: the journal entries on September 30, 2019 for notes payable of Company PC.
3(a)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
September 30 | Notes Payable | 41,000,000 | |
Interest Expense (c) | 2,767,500 | ||
Interest Payable (a) | 922,500 | ||
Cash | 44,690,000 | ||
( To record the payment of notes payable and interest) |
(Table 5)
Explanation of Solution
Working Notes:
- Interest Expense for is a component of stockholder’s equity and there is a decrease in the value of stockholder’s equity, so debit interest expense for $ 2,767,500.
- Interest payable is a liability and decreased, so debit it for $ 922,500.
- Note Payable is a liability and decreased, so debit it for $ 41,000,000.
- Cash is an asset and decreased at the time of maturity, so credit it for $ 44,690,000.
3(b)
Notes Receivable:
Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.
To Prepare: the journal entries on September 30, 2019 for notes receivable of Company M.
3(b)
Answer to Problem 8.2AP
Date | Account Titles and Explanation |
Debit (Amount in $) |
Credit (Amount in $) |
September 30 | Cash | 44,690,000 | |
Interest Revenue (d) | 2,767,500 | ||
Interest Receivable (b) | 922,500 | ||
Notes Receivable | 41,000,000 | ||
(To record the collection of notes receivable and interest) |
(Table 6)
Explanation of Solution
Working Notes:
- Interest Revenue for is a component of stockholder’s equity and there is a increase in the value of stockholder’s equity, so credit interest expense for $ 2,767,500.
- Interest receivable is asset and it has increased the value of the asset, so credit it for $ 922,500.
- Note receivable is an asset and it has increased the value of the asset, so credit it for $ 41,000,000.
- Cash is an asset and increased at the time of maturity, so debit it for $ 44,690,000.
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