On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month,

$90,000, 12% note.
Instructions
(a) Prepare the entry on June 1.
(b) Prepare the adjusting entry on June 30.
(c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been
made through November 30.
(d) What was the total financing cost (interest expense)?

Baik

To calculate the total financing cost (interest expense) for a note, we first need to understand the terms of the note. In this case, Melendez Company borrowed $90,000 from First Bank on a 6-month note with a principal amount of $90,000 and an interest rate of 12%.

(a) To prepare the entry on June 1, when the note is initially borrowed, we will debit the Cash account for $90,000 (the amount received from the bank) and credit the Notes Payable account for the same amount. The entry will be as follows:

June 1:
Debit Cash $90,000
Credit Notes Payable $90,000

(b) The adjusting entry on June 30 is made to record the interest expense for the first month. To calculate the interest expense, we need to multiply the principal amount of the note by the interest rate and prorate it for one month since it is a 6-month note. The formula to calculate interest expense is:

Interest Expense = Principal Amount x Interest Rate x Time

In this case, the interest expense for June will be:

Interest Expense = $90,000 x 0.12 x (1/12) = $900

We will debit the Interest Expense account for $900 and credit the Interest Payable account for the same amount. The entry will be:

June 30:
Debit Interest Expense $900
Credit Interest Payable $900

(c) The entry at maturity (December 1) will depend on the monthly adjusting entries made through November 30. Assuming adjusting entries have been made each month to record the interest expense, the entry at maturity will be as follows:

December 1:
Debit Notes Payable $90,000
Debit Interest Payable $5,400 ($900 x 6, representing total interest expense for 6 months)
Credit Cash $95,400 ($90,000 + $5,400)

(d) The total financing cost (interest expense) can be calculated by summing up the monthly interest expenses incurred over the 6-month period. Since we have already calculated the interest expense for June as $900, we just need to calculate the interest expense for the remaining 5 months (July to November) and add them together.

Interest Expense for July to November = $900 (monthly interest expense) x 5 months = $4,500

Total financing cost (interest expense) = $900 (June) + $4,500 (July to November) = $5,400