Teal Mountain Trees Note Payable Journal Entries
What transactions did Teal Mountain Trees make related to the note payable?
Record all transactions related to the note payable for Teal Mountain Trees.
Answer:
1. On August 1, 2024, Teal Mountain Trees signed the note payable as follows:
Date: August 1, 2024
Account Titles: Note Payable
Debit: $48,000
Account Titles: Cash
Credit: $48,000
2. On December 31, 2024, an adjusting entry was made to accrue interest expense:
Date: December 31, 2024
Account Titles: Interest Expense
Debit: $4,800
Account Titles: Interest Payable
Credit: $4,800
3. On February 28, 2025, Teal Mountain Trees paid the note and interest at maturity:
Date: February 28, 2025
Account Titles: Interest Payable
Debit: $4,800
Account Titles: Note Payable
Debit: $48,000
Account Titles: Cash
Credit: $52,800
Note: The interest expense was calculated based on the note payable terms.
Details Explanation:
Teal Mountain Trees entered into a note payable agreement with Canada Bank on August 1, 2024. The note amount was $48,000 with an interest rate of 10% and a maturity of seven months. The company recorded the initial transaction by debiting the Note Payable account and crediting the Cash account.
As the fiscal year end for Teal Mountain Trees is on December 31, an adjusting entry was made to accrue the interest expense on the note payable. The Interest Expense account was debited, and the Interest Payable account was credited for the amount of $4,800.
On February 28, 2025, Teal Mountain Trees paid off the note and interest at maturity. The Interest Payable account was debited, the Note Payable account was debited, and the Cash account was credited for the total amount of $52,800.
The interest expense was calculated based on the formula: Principal amount × Interest rate × Time period. The total interest expense was divided between the periods from August 1, 2024, to December 31, 2024, and from January 1, 2025, to February 28, 2025.