Accounting

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Answer
Solution :
a)1. Calculate the amount of interest expense for the life of the note.
Interest for Life of Note = Note Payble Amount * Period of Note * Rate of Interest
= 120,000 * 6/12 months * 9%
=5,400
a)2.Monthly Interest = Total Interest for life of Note / Life of Note
= 5,400 / 6 Months
=900
b) Calculation of amount of liability to bank in Financial Statement ending 31,st Dec 2013
Liabilty to Bank = Princial Amount + Interest Outstanding
= 120,000 + ( 120,000 * 9%* 2months i.e Nov and Dec/12 Months)
= 120,000 + 1,800
=121,800
c)
Journal entry for the issue of the note payable:
Account Title Debit Credit
Cash 120,000
Notes Payble 120,000
d)
Adjusting entry to record the accrued interest expense as on December 31, 2013

2. Account Title Debit Credit
Interest Expenses 900
Interest Expenses Payble 900
(This Interest is monthly Interest for month of December, as company adjusts its accounts monthly)
e)
Calculation of amount of Liability of Bank as on 31, March , 2014
Amount of Liability = Notes Payble + Interest for 5 months (31 Oct - 31st March)
= 120,000 + (Monthly Interest * 5 )
=120,000 + (900*5)
=120,000 + 4,500
=124,500
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