1. a
Prepare the
1. a
Answer to Problem 2PA
Prepare the journal entry on October1, 2021 for notes payable of Company PC as follows:
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
October 1, 2021 | Cash | 41,000,000 | |
Notes Payable | 41,000,000 | ||
(To record the issuance of notes payable) |
Table 1
Explanation of Solution
Note payable:
Note payable denotes a long-term liability that describes the amount borrowed, signed and issued note. The note carries all the details of payable amounts, interest amounts, and maturity dates.
Description:
- Cash is an asset and it increases the value of asset, so debit it for $41,000,000.
- Note Payable is a liability and it increases the value of liability, so credit it for $41,000,000.
1. b
Prepare the journal entry on October1, 2021 for notes receivable of Company M.
1. b
Answer to Problem 2PA
Prepare the journal entry on October1, 2021 for notes receivable of Company M as follows:
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
October 1, 2021 | Notes Receivable | 41,000,000 | |
Cash | 41,000,000 | ||
(To record the acceptance of the note receivable) |
Table 2
Explanation of Solution
Notes receivable:
Notes receivable denotes a long-term asset that describes the amount to be received by the company. The note carries all the details of receivable amounts, principal and interest, and maturity dates.
Description:
- Note Receivable is an asset and it increases the value of asset, so debit it for $41,000,000.
- Cash is an asset and it decreases the value of asset, so credit it for $41,000,000.
2. a
Record the
2. a
Answer to Problem 2PA
Record the adjusting entry on December 31, 2021 for notes payable of Company PC as follows:
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
December 31, 2021 | Interest Expense | 922,500 | |
Interest Payable (1) | 922,500 | ||
(To record the interest accrued, but not paid) |
Table 3
Explanation of Solution
Working Notes:
Description:
- Interest Expense is a component of
stockholder’s equity and it decreases the value of stockholder’s equity, so debit interest expense for $922,500. - Interest payable is a liability and it increases the value of liability, so credit it for $922,500.
Notes:
In this case, the interest is accrued from October to December (3 months).
2. b
Record the adjusting entry on December 31, 2021 for notes receivable of Company M.
2. b
Answer to Problem 2PA
Record the adjusting entry on December 31, 2021 for notes receivable of Company M as follows:
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
December 31, 2021 | Interest Receivable (2) | 922,500 | |
Interest Revenue | 922,500 | ||
(To record interest earned, but not received) |
Table 4
Explanation of Solution
Working Notes:
Description:
- Interest receivable is an asset and it decreases the value of asset, so debit interest receivable for $922,500.
- Interest Revenue is a component of stockholder’s equity and it increases the value of stockholder’s equity, so credit interest revenue for $922,500.
Note:
In this case, the interest is accrued from October to December (3 months).
3. a
Prepare the journal entries on September 30, 2022 for notes payable of Company PC.
3. a
Answer to Problem 2PA
Prepare the journal entries on September 30, 2022 for notes payable of Company PC as follows:
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
September 30, 2022 | Notes Payable | 41,000,000 | |
Interest Expense (3) | 2,767,500 | ||
Interest Payable (1) | 922,500 | ||
Cash | 44,690,000 | ||
( To record the payment of notes payable and interest) |
Table 5
Explanation of Solution
Working Notes:
Description:
- Interest Expense is a component of stockholder’s equity and there is a decrease in the value of stockholder’s equity, so debit interest expense for $2,767,500.
- Interest payable is a liability and it decreases the value of liabilities, so debit it for $922,500.
- Note Payable is a liability and it decreases the value of liabilities, so debit it for $41,000,000.
- Cash is an asset and it decreases the value of assets at the time of maturity, so credit it for $44,690,000.
3. b
Prepare the journal entries on September 30, 2022 for notes receivable of Company M.
3. b
Answer to Problem 2PA
Prepare the journal entries on September 30, 2022 for notes receivable of Company M as follows:
Date | Account Titles and Explanation | Debit ($) | Credit ($) |
September 30, 2022 | Cash | 44,690,000 | |
Interest Revenue (4) | 2,767,500 | ||
Interest Receivable (2) | 922,500 | ||
Notes Receivable | 41,000,000 | ||
(To record the collection of notes receivable and interest) |
Table 6
Explanation of Solution
Working Notes:
Description:
- Cash is an asset and it decreases the value of assets at the time of maturity, so debit it for $44,690,000.
- Interest Revenue is a component of stockholder’s equity and there is an increase in the value of stockholder’s equity, so credit interest expense for $2,767,500.
- Interest receivable is asset and it increases the value of asset, so credit it for $922,500.
- Note receivable is an asset and it increases the value of asset, so credit it for $41,000,000.
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