Borrowed $8000 from Central Bank for 90 days; discounted rate is 8.5 percent. Signed a non-interest-bearing note, dated October 10.Im recording this in my general journal I debit CashCredit Notes Payable I have two more lines and not sure what else I need to put. Is there an equation 8000 x 8.5% x 90/360Do I need to Credit Interest Expense 170?Please I need some help.
      Answer1:The journal entry for the date the note is made is as follows: October 10, 20X0Cash....8,000(CR)Note Payable..8,000At the end of the accounting period (December 31, 20X0) you must prepare adjusting entries for the accrued interest.You must repay both the principle and the accrued interest on the maturity date. The interest is calculated as follows: Interest = (Principle)(rate)(time)Interest = (8,000)(0.085)(82/90)*Interest = 619.56*(The time is the sum of the 21 remaining days in October, 30 days in November and 31 days in December).With this we can prepare the adjusting entries for year-end as follows: December 31, 20X0Interest Expense..619.56(CR)Interest Payable.....619.56At maturity cash will be exchanged and you will remove your payables that relate to the note and the accrued interest. You will also recognize the interest earned during this period. The interest is calculated as follows: Interest = (Principle)(rate)(time)Interest = (8,000)(0.085)(8/90)*Interest = 60.44The entries for the maturity date are as follows: January 8, 20X1Interest expense...60.44Interest payable...619.56Notes payable...8,000(CR)Cash................8,680
      Answer2:what you need to record is a Prepaid Interest Expense. your journal entry would be:debit cash 7.830debit prepaid interest 170credit notes payable 8,000
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