CH. 8 introduction
Identify characteristics of notes payable that are not common to accounts payable.
Interest bearing Based on promissory note
A _____ of _____ is an informal agreement that permits a company to borrow up to a prearranged amount without having to follow formal loan procedures.
Line Credit
On October 1, 2018, Logan Corporation signed a 6-month, 8% interest-bearing promissory note for $10,000. The journal entry required at December 31, 2018 would include which of the following?
Debit interest expense $200
On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2019. The journal entry on November 1, 2018 would include which of the following?
Debit to cash $100,000 Credit to Notes Payabe $100,000
Rhodes borrowed $5,000 by signing a 5-year note with an interest rate of 8%. On the date the note is signed, Rhodes should
credit notes payable $5,000.
Liabilities that are payable within one year commonly are classified as _____ liabilities, while those payable more than one year from now commonly are classified as _____ liabilities.
current long-term
On September 1, 2018, Kale Corporation signed a 6-month, 12% interest-bearing promissory note for $100,000. The journal entry required March 1, 2019 at the maturity date includes which of the following entries?
debit interest expense $2,000debit interest payable $4,000debit note payable $100,000credit cash $106,000
A(n) _____ payable results from an agreement with a supplier to pay within 30 to 60 days, whereas a(n) _____ payable is a signed contract that promises to pay a specific amount with interest at a specific maturity date.
Accounts Notes
On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. Given no previous adjusting entries have been recorded, ABC's adjusting entry at December 31 would include a ______.
debit to Interest expense of $1,000
Gladys Company signs an agreement under which Gladys may borrow up to $100,000 at a 6% annual interest rate whenever the company needs cash. This agreement is commonly referred to as a
line of credit
On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. The entry ABC would record at maturity, assuming all year-end (December 31) adjusting entries were made correctly, would include a ______.
credit to Cash of $52,250 debit to Notes payable of $50,000 debit to Interest expense of $1,250 debit to Interest payable of $1,000
A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a(n)
liability
Jingle Company signs a 6-month, $20,000 note. Stated interest rate is 8% payable at the maturity date. Interest incurred on the note is:
800
On September 1, 2018, Kale Corporation signed a 6-month, 12% interest-bearing promissory note for $100,000. The journal entry required at December 31, 2018 would include which of the following?
Debit interest expense $4,000
True or false: Current liabilities are always payable within one year
False
Volker Company signs a 3-month, $10,000 note. Stated interest rate is 12% payable at the maturity date. Interest incurred on the note is:
$300
A(n) _____ , is a probable future sacrifice of economic benefits arising from present obligations to transfer assets or provide services as a result of past transactions or events.
liability
