Question

On November 7, 2017, Mura Company borrows \(160,000 cash by signing a 90-day, 8% note payable with

a face value of \)160,000.

(1) Compute the accrued interest payable on December 31, 2017,

(2) Prepare the journal entry to record the accrued interest expense at December 31, 2017, and

(3) Prepare the journal entry to record payment of the note at maturity.

Short answer

1. The interest expense account is debited with $ 920, and the interest account is credited $1,920.
2. The journal entry is shown below.
3. The journal entry is shown below.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of accrued interest.

An accrued interest is an interest that is due but not paid.

Calculation of accrued interest

$\begin{array}{rcl}\text{Accrued} \text{Interest} & =& \text{Face} \text{Value×Interest} \text{Rate×Time} \text{Period}\\ & =& \text{\$ 160,000×8\%×}\frac{\text{54}}{\text{360}}\\ & =& \text{\$ 1,920.}\end{array}$

Journal entry of accrued interest

Date	Particulars	Debit	Credit
December 31, 2017	Interest Expense	$1,920
	Interest Payable		$1,920
	(Being entry of accrued interest)
February 5, 2017	Notes Payable	$160,000
	Interest Payable	$1,920
	Interest Expense	$1,280
	Cash		$163,200
	(Being the entry for the payment of interest and bonds on maturity)