Notes Payable Example: Journalizing and Accounting for Interest

The video tutorial explains how to handle notes payable, focusing on journalizing events, calculating interest, and making adjustments for notes that span multiple years or are short-term. It covers examples of notes payable that cross year-end, are within a single year, and are short-term, providing detailed steps for each scenario.

What is the initial journal entry when Sierra Company borrows $100,000 with a nine-month note?

• Debit Cash $100,000; Credit Interest Payable $100,000

• Debit Interest Expense $100,000; Credit Cash $100,000

• Debit Cash $100,000; Credit Notes Payable $100,000

• Debit Notes Payable $100,000; Credit Cash $100,000

How is the interest accrued by December 31st calculated for a note starting on September 1st?

• Principal x Interest Rate x 9/12

• Principal x Interest Rate x 5/9

• Principal x Interest Rate x 4/12

• Principal x Interest Rate x 4/9

What is the remaining interest to be paid at the maturity of the note in the second year?

• $6,000

• $2,667

• $3,333

• $1,500

When a note starts and ends within the same year, what is the journal entry for paying it off?

• Debit Notes Payable; Credit Cash and Interest Expense

• Debit Cash; Credit Notes Payable

• Debit Cash; Credit Notes Payable and Interest Expense

• Debit Interest Payable; Credit Cash

In a 45-day note, what rule is used to calculate interest?

• Weekly rule

• 365-day rule

• Bankers' rule (360-day)

• Monthly rule

How is the interest for a 45-day note calculated at year-end?

• Total Interest x 30/360

• Total Interest x 30/45

• Total Interest x 45/360

• Total Interest x 15/45

What is the final journal entry for paying off a 45-day note?

• Debit Cash; Credit Notes Payable

• Debit Cash; Credit Notes Payable and Interest Expense

• Debit Notes Payable and Interest Expense; Credit Cash

• Debit Interest Payable; Credit Cash