Question

BE13-3 (L01) Takemoto Corporation borrowed \(60,000 on November 1, 2017, by signing a \)61,350, 3-month, zero-interest bearing note. Prepare Takemoto’s November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry.

Short answer

The amount of discount on notes payable is $1,350.

Step-by-step solution

Meaning of Notes Payable

Notes payable is a negotiable instrument. It is used by borrowers to borrow money by promising the lender to pay the borrowed amount on a specific date. The nature of notes payable as a current liability or non-current liability depends on the maturity period.

Journal Entries

Date	Accounts and Explanation	Debit $	Credit $
November 1, 2017	Cash	$60,000
	Discount on Notes Payable	$1,350
	Notes Payable		$61,350
December 31, 2017	Interest Expenses	$900
	Discount on Notes Payable ($1,350 x 2/3)		$900
February 1, 2018	Interest expenses	$450
	Discount on Notes Payable		$450
February 1, 2018	Notes Payable	$61,350
	Cash		$61,350