Prepare
Explanation of Solution
Note Payable:
Note payable is an obligation of the business to pay to its creditors in future for the benefits received that carries some interest.
Prepare journal entry to record the following transactions of MR Shop are shown below:
Date | Account titles and Explanation | Debit | Credit |
April 1 | Cash | $4,000 | |
Notes payable | $4,000 | ||
(To record note issued for bank loan) | |||
April 5 | Purchases | $3,000 | |
Notes payable | $3,000 | ||
(To record note issued for inventory purchase) | |||
April 10 | Accounts payable – A.A | $2,000 | |
Cash | $400 | ||
Notes payable | $1,600 | ||
(To record partial payment made and issued note to settle account) | |||
May 10 | Notes payable (old note) | $1,600 | |
Interest expense (1) | $8 | ||
Cash | $408 | ||
Notes payable (new note) | $1,200 | ||
(To record paid interest and part of partial of principal on old note and issued new note) | |||
May 20 | Cash (3) | $4,440 | |
Discount on bonds payable (2) | $600 | ||
Notes payable | $4,500 | ||
(To record issued note for bank loan) | |||
June 4 | Notes payable (old note) | $3,000 | |
Interest expense (4) | $35 | ||
Cash | $535 | ||
Notes payable (new note) | $2,500 | ||
(To record paid interest and part of partial of principal on old note and issued new note) | |||
June 9 | Notes payable | $1,200 | |
Interest expense (5) | $7 | ||
Cash | $1,207 | ||
(To record paid note with interest at maturity) | |||
June 30 | Notes payable | $4,000 | |
Interest expense (6) | $80 | ||
Cash | $4,080 | ||
(To record paid note with interest at maturity) | |||
July 4 | Notes payable | $2,500 | |
Interest expense (7) | $14.58 | ||
Cash | $2,514.58 | ||
(To record paid note with interest at maturity) | |||
July 19 | Notes payable | $4,500 | |
Interest expense (8) | $60 | ||
Discount on notes payable | $60 | ||
Cash | $4,500 | ||
(To record paid note at maturity) |
Table (1)
Working notes:
(1)Calculate interest expenses.
Interest expense = Notes payable × Interest rate × Time period= $1,600 × 6% × 30360= $8
(2)Calculate discount on notes payable.
Discount on notes payable = Notes payable × Interest rate × Time period= $4,500 × 8% × 60360= $60
(3)Calculate cash proceeds.
Cash proceeds = Notes payable −Discount on notes payable= $4,500 −$60= $4,440
(4)Calculate interest expense.
Interest expense = Notes payable × Interest rate × Time period= $3,000 × 7% × 60360= $35
(5)Calculate interest expense.
Interest expense = Notes payable × Interest rate × Time period= $1,200 × 7% × 30360= $7
(6)Calculate interest expense.
Interest expense = Notes payable × Interest rate × Time period= $4,000 × 8% × 90360= $80
(7)Calculate interest expense.
Interest expense = Notes payable × Interest rate × Time period= $2,500 × 7% × 30360= $14.58
(8)Calculate interest expense.
Interest expense = Notes payable × Interest rate × Time period= $4,500 × 8% × 60360= $60
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Chapter 17 Solutions
Study Guide for Working Papers for Heintz/Parry's College Accounting, Chapters 16-27, 23rd
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