I tried to answer this question but I keep getting it wrong. There is an error i
ID: 2462026 • Letter: I
Question
I tried to answer this question but I keep getting it wrong. There is an error in one or two because I can't get full credit. Can I get some help?:
Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Target Corporation is one of America’s largest general merchandise retailers. Each Christmas, Target builds up its inventory to meet the needs of Christmas shoppers. A large portion of Christmas sales are on credit. As a result, Target often collects cash from the sales several months after Christmas. Assume that on November 1, 2015, Target borrowed $7.4 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 6.00 percent payable at maturity. The accounting period ends December 31.
Complete the required journal entries to record the note on November 1, 2015, interest on the maturity date, April 30, 2016, assuming that interest has not been recorded since December 31, 2015. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
1) April 30th, 2016: Record the repayment of the note plus interest on the maturity date.
I put:
Debit Notes payable short term 7400000
Debit Interest Expense 222000
Debit Interest Payable 74000
Credit Cash 7622000
Complete the required journal entries to record the note on November 1, 2015, interest on the maturity date, April 30, 2016, assuming that interest has not been recorded since December 31, 2015. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
1) April 30th, 2016: Record the repayment of the note plus interest on the maturity date.
I put:
Debit Notes payable short term 7400000
Debit Interest Expense 222000
Debit Interest Payable 74000
Credit Cash 7622000
Explanation / Answer
Interest accrued till December
= $7,400,000 @ 6% * 2/12 = $ $74,000
Entry on December 31
Interest expense
$74,000
To interest payable
$74,000
Interest from Jan to March = 7,400,000@6%*4/12 = $148,000
Journal entry on April 30
Notes payable
$7,400,000
Interest payable
74,000
Interest expense
148,000
To Cash
$7,622,000
Interest accrued till December
= $7,400,000 @ 6% * 2/12 = $ $74,000
Entry on December 31
Interest expense
$74,000
To interest payable
$74,000
Interest from Jan to March = 7,400,000@6%*4/12 = $148,000
Journal entry on April 30
Notes payable
$7,400,000
Interest payable
74,000
Interest expense
148,000
To Cash
$7,622,000