C. S. Sheridan Company had the following transactions involving notes payable.

July 1, 2022 Borrows $53,000 from First National Bank by signing a 9-month, 8% note.
Nov. 1, 2022 Borrows $56,000 from Lyon County State Bank by signing a 3-month, 6% note.
Dec. 31, 2022 Prepares adjusting entries.
Feb. 1, 2023 Pays principal and interest to Lyon County State Bank.
Apr. 1, 2023 Pays principal and interest to First National Bank.

Prepare journal entries for each of the transactions.

July 1, 2022:

Debit Cash                                         $53,000

Credit Note payable                          $53,000

(To record note payable - 9-month, 8% note)

Nov. 1, 2022:

Debit Cash                                         $56,000

Credit Note payable                          $56,000

(To record note payable - 3-month, 6% note)

Dec. 31, 2022:

Debit Interest expense                       $2,120

Credit Interest payable                       $2,120

(To record 6 months interest payable on 9-month, 8% note)

Debit Interest expense                          $560

Credit Interest payable                          $560

(To record 2 months interest payable on 3-month, 6% note)

Feb. 1, 2023:

Debit Note payable                            $56,000

Debit Interest payable                             $840

Credit Cash                                         $56,840

(To record payment of principal & interest to Lyon County State Bank)

Apr. 1, 2023:

Debit Note payable                           $53,000

Debit Interest payable                         $3,180

Credit Cash                                        $56,180

(To record payment of principal & interest to First National Bank)

Explanation:

Note is a promissory note with a written agreement made by the borrower to the lender (payee) to pay a certain, specific sum at a specified date. At times, it is used in lieu of accounts receivable because it is interest-bearing.

Interest expense on the note is calculated as: Principal x Interest Rate x Time

First National Bank Note:

The total interest expense is $53,000 x 8%/12 x 9 months = $3,180.

Monthly interest expense is therefore $3,180 / 9 months = $353.33.

Total interest as at December 31, 2022 (July 1 - Dec 31): $353.33 x 6 months = $2,120.

Lyon County State Bank Note:

The total interest expense is $56,000 x 6%/12 x 3 months = $840.

Monthly interest expense is therefore $840 / 3 months = $280.

Total interest as at December 31, 2022 (Nov. 1 - Dec 31): $280 x 2 months = $560.