Notes Payable

A business issued a 90-day, 6% note for $25,000 to a creditor for an accounts payable. 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.

Financial Statement Effects

		Balance Sheet
	Assets	=	Liabilities	+	Stockholders' Equity
Account receivableCashNo effect	=	Accounts payableAccount receivableNo effect	+	CashNotes payableNo effect	+	Capital stockRetained earningsNo effect
	fill in the blank 5		fill in the blank 6		fill in the blank 7		fill in the blank 8
	Statement of Cash Flows		Income Statement
	FinancingInvestingOperatingNo effect	fill in the blank 10		Cost of merchandise soldNet incomeSalesNo effect	fill in the blank 12

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.

Financial Statement Effects

		Balance Sheet
	Assets	=	Liabilities	+	Stockholders' Equity
CashNotes payableNo effect	=	Accounts payableNotes payableNo effect	+	Capital stockRetained earningsNo effect
	fill in the blank 16		fill in the blank 17		fill in the blank 18
Statement of Cash Flows		Income Statement
FinancingInvestingOperatingNo effect	fill in the blank 20		Cost of merchandise soldInterest expenseSalesNo effect	fill in the blank 22