On August 1, 2018, Trico Technologies, an aeronautic electronics company, borrows $20.3 million cash to expand operations. The loan is made by FirstBanc Corp. under a short-term line of credit arrangement. Trico signs a six-month, 6% promissory note. Interest is payable at maturity. FirstBanc Corp.'s year-end is December 31.

Record the necessary entries in the Journal Entry Worksheet

August 1,2018

Issuance of Note

Dr. Cash $20,300,000

Cr. Note payable $20,300,000

December 31,2018

Interest Accrued

Dr. Interest Expense $507,500

Cr. Interest payable $507,500

February 1, 2019

Payment of Note

Dr. Note Payable $20,300,000

Dr. Interest Payable $507,500

DR. Interest Expense $101,500

Cr. Cash $20,909,000

Explanation:

Note Payable is promise in writing to pay a sum of money in future. The money normally consists of Principal and interest.

Principal value = $20,300,000

The interest of 5 months is accrued at December 31 and it will be recorded.

Payment of Interest and Principal is made on February 1,2019

Accrued Interest = $20,300,000 x 6% x 5/12 = $507,500

Interest Expense on maturity = $20,300,000 x 6% x 1/12 = $101,500

Aug 1

Dr Cash 20,300,000

Cr Notes payable 20,300,000

Dec 31

Dr Interest expense 510,000

Cr Interest payable 510,000

Jan 31

Dr Notes payable 20,400,000

Dr Interest expense 102,000

Dr Interest payable 522,500

Cr Cash 21,024,500

Explanation:

Trico Technologies Journal entries

Aug 1

Dr Cash 20,300,000

Cr Notes payable 20,300,000

Dec 31

Dr Interest expense 510,000

Cr Interest payable 510,000

(20,400,000*5/12*6%)

Jan 31

Dr Notes payable 20,400,000

Dr Interest expense 102,000

($20,400,000*1/12*6%)

Dr Interest payable 522,500

(20,400,000*5/12*6%)

Cr Cash 21,024,500