Lecture sheet (7)

Chapter (11)
Notes Payable
Ex: (1)
On the last day of August, Shelsy Company borrows $60,000 on a bank note for 60 days at 10
percent interest.. Prepare the following entries in journal form: (1) August 31,
recording of note, (2) September 30, accrual of interest expense, and (3) October.30,
payment of note plus interest
a) Interest is not included in the face amount and b) Interest is included in the face amount of the note.

Ex: (2)
On the last day of October, Shealy Company borrows $30,000 on a bank note for 60 days at
12 percent interest. Interest is not included in the face amount. Prepare the following entries
in journal form: (1) October 31, recording of note, (2) November30, accrual of interest
expense, and (3) Dec.30, payment of note plus interest.

Ex: (3)
Assume the same facts as in Ex2, except that interest is included in the face amount of the
note and the note is discounted at the bank on October 31. prepare the following entries in
journal form:(1) October 31, recording of note, (2) November 30, recognition of interest
accrued on note, and (3) Dec. 30, payment of note and recording of interest expense.

Ex: (4)
Mclaughlin, Inc., whose fiscal year ends June 30, 2010, completed the following transactions involving notes
payable:
May11 Purchased a small crane by issuing a 60- days, 12% note for$54,000. The face of the note does not
include interest.
16 Obtained a $ 40,000 bank loan to finance a temporary increase in receivables by signing a 90-day
,10 percent note. The face value includes interest.
June 30 Made the end-of-year adjusting entry to accrue interest expense.
30 Made the end-of-year adjusting entry to recognize interest expired on the note.

July 10 Paid the note plus interest on the crane purchase.

Aug 14 Paid off the note to the bank.
Required: Prepare entries in journal form for the above transactions.

Ex: (5)
Iron's Paper Company, , whose fiscal year ends Dec. 31, completed the following transactions involving notes
payable:
2009
Nov.25 Purchased a loading cart by issuing a 60- days, 10 % note for$43,200.
Dec.16 Borrowed a $ 50,000 from the bank to finance inventory by signing a 90-day ,. The face value
includes interest of $1500. Proceeds received were $48,500.
31 Made the end-of-year adjusting entry to accrue interest expense.
31 Made the end-of-year adjusting entry to recognize the discount expired on the note.
2010
Jan 24 Paid off the loading cart note.
March 14 Paid off the inventory note to the bank.
Required: Prepare entries in journal form for the above transactions.
Ex (6):

On March 1, Gorman Company borrows $60,000 from Ottawa State Bank by signing a 6-month, 8%,
interest-bearing note.
Required:
Prepare the necessary entries below associated with the note payable on the books of
Gorman Company.
(a) Prepare the entry on March 1 when the note was issued.
(b) Prepare any adjusting entries necessary on June 30 in order to prepare the semi-annual financial
statements. Assume no other interest accrual entries have been made.
(c) Prepare the adjusting entry at August 31 to accrue interest.
(d) Prepare the entry to record payment of the note at maturity.