[Flo1231]

On May 1, 2010, ACME Bank agreed to lend Bright Enterprises $110,000. To that effect, Bright signed a $110,000, 10-month, 11% note. Bright Enterprises has a year-end of December 31. Interest is payable at maturity.

Prepare the journal entry for Bright Enterprises:
a) On the date the note was signed
b) At year-end
c) On February 28, 2011 when the note is repaid

May1 - record note payable

Dec31 to record interest payable from note
Feb28 to record repayment of not and additional interest.

Thanks a lot.

[pready]

For the Note being signed your accounts will be: Notes Payable and Cash

For year end you have to compute the amount of interest owed, which is Principal times Rate times time equals interest. Time will be number of months from the signing the note to year end divided by 12 months. Your accounts will be; Interest Payable and Interest Expense.

When the note is repaid you have to calculate the amount of interest owed from Jan 1 to when the note is paid. Use formula from above, just change the number of months from Jan 1 to when the note is paid divided by 12 months.

Your amount due will be the note amount and the amount in interest payable and interest expense for Jan 1 to when the note is paid. Your accounts will be; Cash, Notes Payable and Interest Expense.