Question

Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. For example, Mitt builds up its inventory to meet the needs of retailers selling to Christmas shoppers. A large portion of Mitt's sales are on credit. As a result, Mitt often collects cash from its sales several months after Christmas. Assume on November 1, 2018, Mitt borrowed $6.8 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 7.50 percent payable at maturity. The accounting period ends December 31 Required: 1. Indicate the accounts, amounts, and effects of the (a) issuance of the note on November 1; (b) impact of the adjusting entry on December 31, 2018; and (c) the payment of the note and interest on April 30, 2019, on the accounting equation. (Do not round intermediate calculations. Enter your answers in whole dollars. Enter any decreases to assets, liabilities, or stockholders equity with a minus sign.) Answer is not complete. Date Assets Liabilities Notes Payable (short-term) Cash 6,800,000 6,800,000 November 1, 2018 Interest Payable December 31, 2018 85,000 Notes Payable (short-term) April 30, 2019 Cash 6,800,000 Interest Payable (85,000)
STOCKHOLDERS EQUITY IS NOT PROFIT & LOSS ON

also please the journal entries

Answer 1

Answer (1):

Liabilities Stockholders' Equity Date Assets + November. 1, 2018 Cash Notes Payable (short-term) Interest Payable Notes Payable (short-term) Interest Payable 6,800,000 6,800,000 Interest Expense December. 31, 2018 -85,000 85,000 -6,800,000 -6,800,000 April.30, 2019 Cash Interest Expense -85,000 Cash* -255,000 -170,000

*The Entry on April 30, as depicted above is a one journal entry (please see below journal entry, with cash credited once). But cash is shown in 2 lines to balance the equations line wise. This is one way to present the same as liabilities has two lines. In case your format does not accept this, alternate ways may be tried. Overall the journal entry of April 30, 2019 below describes the transaction.

Answer (2).

Journal entries:

General Journal Debit Credit Date $6,800,000 November. 1, 2018 Cash Notes Payable (short-term) (to record borrowing against notes payable) $6,800,000 December. 31, 2018 Interest Expense $85,000 Interest Payable $85,000 (to record accrual of interest) Notes Payable (short-term) Interest Payable Interest Expense $6,800,000 April.30, 2019 $85,000 $170,000 Cash $7,055,000 |(to record payment of note with interest)