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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

On August 5, M. Valenty borrowed $8,500 from Costner State Bank for 45 days, with a discount rate of 7 percent. Accordingly, M. Valenty signed a note for $8,500, dated August 5. Write entries in general journal form to record the following transactions:

  1. a. Issuance of the note on August 5.
  2. b. Payment of the note at maturity on September 19.

Check Figure

8/5 Notes Payable, $8,500

a.

To determine

Journalize the issuance of note on August 5.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Journalize the issuance of discounted note on August 5.

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)
August 5 Cash   8,425.62  
    Interest Expense   74.38  
       Notes Payable     8,500.00
    (Record discounted note payable issued)      

Table (1)

Description:

  • Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
  • Interest Expense is an expense account...

b.

To determine

Journalize the payment of principal amount on September 19 (maturity date).

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