
Concept explainers
Notes Payable:
It is a negotiable debt instrument used to borrow money for the business operation purpose for specified period of time with certain interest.
To determine:
Prepare journal entries related to accounts and notes payable. Compute both amount and timing of interest expense for each note. Prepare the subsequent period journal entries related to accrued interest.

Answer to Problem 1GLP
Solution:
Date | General Journal | Debit | Credit |
2014 | |||
Apr. 20 | Merchandise Inventory | $40,250 | |
Accounts Payable − Locust | $40,250 | ||
May 19 | Accounts Payable − Locust | $40,250 | |
Cash | $5,250 | ||
Notes Payable − Locust | $35,000 | ||
July 8 | Cash | $80,000 | |
Notes Payable − National Bank | $80,000 | ||
Aug. 17 | Notes Payable - Locust | $35,000 | |
Interest Expense | $875 | ||
Cash | $35,875 | ||
Nov. 5 | Notes Payable − National Bank | $80,000 | |
Interest Expense | $2,400 | ||
Cash | $82,400 | ||
Nov. 28 | Cash | $42,000 | |
Notes Payable − Fargo Bank | $42,000 | ||
2015 | |||
Jan. 27 | Notes Payable − Fargo Bank | $42,000 | |
Interest Expense | $252 | ||
Interest Payable | $308 | ||
Cash | $42,560 |
Accounts Payable Ledger
Date | Debit | Credit | Balance |
2015 | |||
Apr. 20 | $40,250 | $40,250 | |
May. 19 | $40,250 | $0 | |
Dec. 31 | $0 | ||
Notes Payable Ledger
Date | Debit | Credit | Balance |
2014 | |||
May 19 | $35,000 | $35,000 | |
July 8 | $80,000 | $115,000 | |
Aug. 17 | $35,000 | $80,000 | |
Nov. 5 | $80,000 | 0 | |
Nov. 28 | $42,000 | $42,000 | |
Dec.31 | $42,000 | ||
2015 | |||
Jan. 27 | $42,000 | 0 |
Amount and timing of Interest Expense for each note | ||||
Notes | Notes Date | Term | Maturity | Amount |
Locust | May 19 | 90 days | August 17 | $875 |
National Bank | July 8 | 120 days | November 5 | $2,400 |
Fargo Bank | November 28 | 60 days | January 27 | $560 |
Date | General Journal | Debit | Credit |
2014 | |||
Dec. 31 | Interest Expense | $308 | |
Interest Payable | $308 |
Explanation of Solution
Explanation:
Locust | National Bank | Fargo Bank | |
Date of issue | May 19 | July 8 | November 28 |
Terms of Notes | 90 days | 120 days | 60 days |
Maturity date | August 17 | November 5 | January 27 |
Computation of interest due at maturity of each three notes
Interest = Principal X Rate of interest X Time
Accrued Interest expense for Fargo Bank
Interest expense for Fargo Bank in 2015
Total Interest Expense | $560 |
Less: Accrued interest expense in 2014 | $308 |
Interest expense to be recorded in 2015 | $252 |
Conclusion:
It is concluded that the maturity date of Locust, National Bank and Fargo Bank notes are August 17, November 5 and January 27 respectively. The interest due at the maturity of Locust is $875, National Bank; 2,400 and Fargo Bank is $560.
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