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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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Note Computations and Entries (Straight Line)

On January 1, 2020. Benton Corporation borrowed $1,000,000 with 10-year, 8.75% notes, interest payable semiannually on June 30 and December 31. Cash in the amount of 5985,500 was received when the note was issued.

Required:

  1. Prepare the necessary journal entry at January 1, 2020.
  2. Prepare the necessary journal entry at June 30, 2020.
  3. Prepare the necessary journal entry at December 31, 2020.
  4. Determine the carrying amount of these notes at the end of the fifth year (December 31, 2024).

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:

Issued note of $1,000,000 for 10years 8.75% note on 1st January 2020 for $985,500 (interest paid semi-annually on June 30 and December 31).

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 journal entry where cash (asset) increased along with Notes Payable (long term liability)...

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 30th June 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:

Adjusting Journal entry on 31st December 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 evaluate:

Carrying amount of these Notes on 31st December 2024.

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