On October 1, Year 1, Tankard Company borrowed $45,000 from the bank and issued a note for that amount. The note had a one-year term and an annual interest rate of 8%.Required:a) Prepare the journal entry to record the issuance of the note.b) Compute the amount of interest expense that will be shown on the Year 1 income statement.c) What is the total amount of cash that will be paid to the bank at the maturity of the note on October 1, Year 2?d) Prepare the liabilities section of the balance sheet at December 31, Year 1.
What will be an ideal response?
a)
| Cash | 45,000 | ? |
| Notes payable | ? | 45,000 |
Interest expense = Face amount of $45,000 × 8% × (3 ÷ 12) = $900
c) $3,600
Interest due on note = $45,000 × 8% × (12 ÷ 12) = $3,600
Cash paid at maturity = Principal of $45,000 + Interest of $3,600 = $48,600
d)
| Notes payable | $45,000 |
| Interest payable | 900 |
| Total liabilities | $45,900 |
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