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On December 15, 2018, Carboy, Inc., borrows $120,000 cash from Third National Bank at 9 percent annual interest. The note is due in 45 days.
Question
On December 15, 2018, Carboy, Inc., borrows $120,000 cash from Third National Bank at 9 percent annual interest. The note is due in 45 days. At December 31, 2018, Carboy records any unpaid interest with an adjusting entry. On January 30, 2019, Carboy pays the principal and interest owed on the bank note.
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Mathematics
3 years
2021-07-28T01:03:23+00:00
2021-07-28T01:03:23+00:00 1 Answers
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Answers ( )
EXPLANATION
Let’s see the facts:
DECEMBER 15 ——->
Carboy borrow = $120,000
Annual interest=9%=0.09(in decimal form)
Note expiration =45 days
DECEMBER 31———-> 16 days after
carboy records an adjusting entry
Considering that 360 days =1 year
Interest expense = (borrow amount*annual interest rate in decimal)* (considering days /360)
Now, we need to calculate the compounding amount as shown as follows:
Interest Expense (debit) 450 (note-1)
Interest payable (credit ) 450
Interest expense = (borrow amount* annual interest rate in decimal*)(c)
Now , replacing terms:
Interest expense= ($120,000* 0.09)*(15/360)=$10,800*1/24= $450
Now, Since the maturity date is 45 days,
The journal entry to record the interest plus principal paid-
Date Particulars
Credit
Debit
Jan-30,2020 interest Expense
900
Interest payable
450
Notes payable
120,000
Cash
121,350
The interest expense to be payable for this month = $(120,000*0.09)/12= $900
Since there is interest due to 450, as the payment is made, the interest payable become debit.
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