QS 11-4 Interest-bearing note transactions LO P1 On November 7, Mura Company borrows $150,000 cash by signing a 90-day, 10%, $150,000 note payable. 1. Compute the accrued interest payable on December 31. 2. & 3. Prepare the journal entry to record the accrued interest expense at December 31 and payment of the note at maturity on

the complete question is 1. Compute the accrued interest payable on December 31. 2. & 3. Prepare the journal entry to record the accrued interest expense at December 31 and payment of the note at maturity date

Notes Payable

Interest Expense

Interest Payable

Cash .

Please see explanatory column for answer.

Explanation:

To calculate  accrued interest on December 31st

we use Interest = Principal x Rate x Time

where time = November 7 to December 31 = 54 days.

Interest = $150,000 x 10% x 54/360= 150,000 x 0.10 x 54/360= $2,250

Journal entry to record the accrued interest expense at December 31

Date             Account                                Debit                Credit

December 31    interest expense             $2,250

             Interest payable                                                     $2,250  

b) To calculate payment of note at maturity date.

the borrowed cash will be paid in 90 days which means fromn November 7 of the previous year to Feb 5 of the next year = 90

using Interest = P XRX T

             150,000 X 10% X 90/360= $3,750

Journal entry to record the payment of the note at maturity. which is on February 5th of the next year.

Date             Account                                Debit                Credit

February 5   Notes payable             $150,000

             Interest expense                $1,500                        

             Interest payable                  $2,250

               Cash                                                                   $153,750

Calculation: interest expense = $3,750-  $2,250= $1500 This is because even though the total accrued interest was $3,750, only $2,250 was payable remaining $1,500 as the new interest expense for maturity date.