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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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ProblemA Entries for and Financial Statement Presentation of a Note

Augustine Corporation borrowed $150,000 from the J.P Morgan Chase Bank on June 1, 2019. on a 3-year, 6.4% note. Interest is paid annually on May 31.

Required:

  1. Record the borrowing transaction in Augustine’s journal.
  2. Prepare the adjusting entries made at December 31, 2019 and 2020.
  3. Prepare the necessary journal entry to recognize the first interest payment on May 31, 2020.
  4. Indicate how the note and associated interest would be presented in Augustine’s December 31, 2020 balance sheet.

Prepare the necessary journal entries to record the repayment of the note and the last year’s interest payment on May 31, 2022.

To determine

(a)

Introduction:

When a company borrows money, a formal agreement for repayment of money and stated rate of interest is signed. This is regarded as “Note” or “Notes Payable”.

To record:

Journal entry for money borrowed.

Explanation

Given:

Borrowed $150,000 for 3years 6.4% note on 1st June 2019 (interest paid annually on 31st May).

The face value of Notes issued is recorded as notes payable and any premium or discount on issue of notes is recorded in separate “Premium on Notes Payable” or “Discount on Notes Payable” account whereas in case of issuance of notes at par it is a regular jou...

To determine

(b)

Introduction:

When a company borrows money, a formal agreement for repayment of money and stated rate of interest is signed. This is regarded as “Note” or “Notes Payable”.

To record:

Adjusting Journal entry on 31st December 2019 and 2020.

To determine

(c)

Introduction:

When a company borrows money, a formal agreement for repayment of money and stated rate of interest is signed. This is regarded as “Note” or “Notes Payable”.

To record:

Interest payment on 31st May 2020.

To determine

(d)

Introduction:

When a company borrows money, a formal agreement for repayment of money and stated rate of interest is signed. This is regarded as “Note” or “Notes Payable”.

To show:

Liability on balance sheet for year ending on 31st December 2020.

To determine

(e)

Introduction:

When a company borrows money, a formal agreement for repayment of money and stated rate of interest is signed. This is regarded as “Note” or “Notes Payable”.

To record:

Repayment of note and interest for last year.

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