Q15E Consider the following note paya... [FREE SOLUTION]

Chapter 11: Q15E (page 607)

Consider the following note payable transactions of Creative Video Productions. 2017 Aug. 1 Purchased equipment costing $16,000 by issuing a one-year, 9% note payable. Dec. 31 Accrued interest on the note payable. 2018 Aug. 1 Paid the note payable plus interest at maturity. Journalize the transactions for the company.

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Answer

Equipment cost is debited by $16,000 and notes payable credited by $16,000.
Interest expenses debited by $600 and interest payable are credited by $600.
Note payable, interest expenses payable and interest expenses are debited by $16,000, $600 and $840 respectively. The cash is credited by $17,440.

Date	Accounts and explanation	Debit	Credit
Aug 1, 2017	Equipment cost	$16,000
	Note payable		$16,000
	(To record equipment in exchange of notes payable)
Dec. 31	Interest expenses	$600
	Interest payable		$600
	(To record accrued interest)
Aug 1, 2018	Note payable	$16,000
	Interest expense payable	$600
	Interest expenses	$840
	Cash		$17,440
	(To record note paid and interest at maturity)

Calculation of interest expenses at December 31:

$I n t e r e s t E x p e n s e s = N o t e s P a y b l e 脳 I n t e r e s t R a t e 脳 P e r i o d = $ 16, 000 脳 9 % \frac{5}{12} = $ 600$

Calculation of interest expenses at August 31:

$I n t e r e s t E x p e n s e s = N o t e s P a y b l e 脳 I n t e r e s t R a t e 脳 P e r i o d = $ 16, 000 脳 9 % \frac{7}{12} = $ 840$

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