Chapter 10 Interest Calculation Practice Problem
On August 1, 2023, Prof. Farley borrowed $50,000 by signing a 5%, 18-month note payable. Interest payments are due
monthly, on the last day of each month. The note will be repaid at maturity on January 31, 2025. Below you are asked
to record just a few of the entries required in this scenario. Pay close attention to the dates!
1. Prepare the entry to record the issuance of the note on August 1, 2023.
2. Prepare the entry to record the payment of interest on August 31, 2023.
3. Prepare the entry to record the payment of interest on September 30, 2023.
4. Prepare the necessary entry on December 31, 2023.
5. Prepare the entry to record the payment of interest and the repayment of the note on January 31, 2025.
Now, assume that the interest rate on this loan is now 8% and the length of the loan will be 10 months instead of 18.
6. Prepare the entry to record the payment of interest on August 31, 2023.
7. Prepare the entry to record the payment of interest and the repayment of the note on the new maturity date of
June 1, 2024.
