On April 30, 2011, a company borrows $50,000 from its bank and signs a promissory note to repay it in 18 months plus interest of 8% per year. Although no principal payments are to be made until the note matures in 18 months, the interest on the note is to be paid every 6 months. The company’s fiscal year end is December 31.
Required:
a. Give the journal entries that would be made in 2011 to record the issuance of the note on April 30 and the first interest payment on October 31.
b. Would an adjusting entry be required on December 31, 2011, related to this note? If so, give the entry.
c. How much interest expense would be reported on the company's statement of earnings for the year ended December 31, 2011?
d. What liabilities related to this loan would be reported on the company's December 31, 2011, statement of financial position? Specify the accounts, amounts, and how they would be classified.
e. Give the journal entries that would be made in 2012 to record the second interest payment on April 30, and the third interest payment and repayment of the principal when the note matures on October 31.
f. How much interest expense would be reported on the company's statement of earnings for the year ended December 31, 2012?