Notes Payable

Concept: Acquiring Notes Payable

5m

Concept: Short-term Note Payable: Interest Expense

6m

Concept: Long-term Note Payable: Interest Expense

8m

Concept: Short-term Note Payable: Maturity

5m

Concept: Long-term Note Payable: Maturity

5m

Notes Payable Additional Practice Problems

The financial statements for ABC Company are prepared on July 31, 2013 based on an accrual accounting basis. No interest for July has been paid for the monies borrowed under the three year promissory note signed on 1/1/13. The interest is due monthly based on the principal balance of $10,000 and an annual interest rate of 6%. How should ABC account for the interest?

a. Debit interest receivable and credit interest payable in the amount of $600 for each account.

b. Debit interest expense and credit interest payable in the amount of $50 for each account.

c. Do not record at this time. Record the interest when the bank sends the bill.

d. Debit interest payable and credit interest expense in the amount of $50 for each account.

Watch Solution

A company purchased office equipment by issuing a short-term note payable. What two accounts were affected by the transaction?

a. Equipment and Cash

b. Equipment and Accounts Payable

c. Equipment and Notes Payable

d. Equipment and Stockholders' Equity

Watch Solution

Your company borrowed $50,000 on September 30 by issuing a 6-month short-term note payable that bears simple interest of 12%. On December 31, the end of the accounting period, the required adjusting entry related to the note will include a debit to Interest Expense and a credit to Interest Payable for the accrued amount of:

a. $1,500

b. $6,000

c. $3,000

d. $2,000

Watch Solution

On June 1, 2004, ABC Company borrowed $40,000 from a bank on a 9%, 9-month note payable.

Calculate the amount of interest expense reported by ABC Company in its   2005 income statement related to this loan.

Watch Solution

ABC Company borrowed on a 6 month, 10% note payable for $5,000 on 10/1/15. Assuming no adjusting entries were made yet, what adjusting entry for interest will they need to make at year end on 12/31?

a. Debit: Interest expense $500 and Credit: Interest Payable $500

b. Debit: Interest expense $250 and Credit: Int. Payable $250

c. Debit: Interest receivable $250 and Credit: Int. Income $250

d. Debit: Interest expense $125 and Credit: Interest Pay. $125

Watch Solution

On July 1, 2006, Gerdin Company borrowed $100,000. The company signed a note payable with interest at 6 percent per year. The note and interest are due on December 31, 2006. On December 31, 2006, Goode paid $103,000 to settle the debt in full. Gerdin has not prepared any financial statements since borrowing the money. Transaction analysis of the $103,000 cash payment on December 31, 2006, should reflect the following:

a. decrease assets, $103,000; decrease liabilities, $103,000

b. decrease assets, $100,000; decrease stockholders' equity, $3,000; and decrease liabilities, $103,000

c. decrease stockholders' equity, $100,000; decrease liabilities, $3,000; and decrease assets, $103,000

d. decrease liabilities, $100,000; decrease stockholders' equity, $3,000; and decrease assets, $103,000

e. None of the above is correct

Watch Solution

M Company borrowed $50,000 cash on April 1, and signed a one-year 12%, interest-bearing note payable. The interest and principal due on March 31 of the following year will be:

a. $50,000

b. $51,500

c. $54,000

d. $56,000

Watch Solution

P Company borrowed $25,000 cash on October 1 and signed a nine-month, 8% interest-bearing note payable with interest payable at maturity. The amount of interest expense to be reported in the year the note matures is:

a. $1,000

b. $300

c. $500

d. $750

Watch Solution