A business issued a 180-day, 8% note for $52,000 to a creditor on account. Illustrate the effects on the accounts and financial statements of recording (a) the issuance of the note and (b) the payment of the note at maturity, including interest.

If no account or activity is affected, select "No effect" from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts.

a. Illustrate the effects on the accounts and financial statements of recording the issuance of the note.

Statement of Cash Flows Balance Sheet Income Statement
Assets = Liabilities + Stockholders' Equity
Statement of Cash Flows Income Statement
No effect No effect
b. Illustrate the effects on the accounts and financial statements of recording the payment of the note at maturity, including interest. Assume a 360-day year. If required, round interest expense to the nearest whole number.

Statement of Cash Flows Balance Sheet Income Statement
Assets = Liabilities + Stockholders' Equity
Statement of Cash Flows Income Statement
Operating Interest expense

We need to prepare the Note Payable and Balance sheet Entries in order to illustrate the effects on the accounts and financial statements of recording the issuance of the note:

SO;

NOTE PAYABLE

Account Payable 52000

Note Payable 52000

BALANCE SHEET

Access = Liabilities + Stockholders Income

' Equity Statement

No effect Account Payable -52000 No effect No effect

Notes Payable + 52000

NET EFFECT = 0

(b)

Illustrate the effects on the accounts and financial statements of recording of the payment of the note at maturity, including interest.

NOTES PAYABLE

Account Payable 52000

Interest expense 2080

(52000×8%× 180/360)

Cash 54080

BALANCE SHEET

Access = Liabilities + Stockholders Income

' Equity Statement

Cash = 54080 Notes Payable Retained Earnings Interest expense

=52000 = 2080 =2080