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22 August, 00:30

On October 1, Eder Fabrication borrowed $69 million and issued a nine-month promissory note. Interest was discounted at issuance at a 11% discount rate. Prepare the journal entry for the issuance of the note and the appropriate adjusting entry for the note at December 31, the end of the reporting period.

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  1. 22 August, 01:58
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    The journal entries which is to be recorded for the issuance as well as the adjusting entry is as:

    Explanation:

    The journal entries which is to be recorded for the issuance as well as the adjusting entry is shown below:

    For issuance of notes payable as:

    Cash A/c ... Dr $69 million

    Notes Payable A/c ... Cr $69 million

    Being record the purchase of the inventory through issuing the notes payable

    For adjusting entry on December 31, is as:

    Interest Expense A/c ... Dr $1,897,500

    Interest Payable A/c ... Cr $1,897,500

    Being record the accrued interest payable for three months

    Working Note:

    Interest expense = $69,000,000 * 11% * 3 / 12

    = $1,897,500

    Note: 3 Months (from October to December 31)
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