Problem
Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. For example, Lifestyle Corporation builds up its inventory to meet the needs of retailers selling to Christmas shoppers. A large portion of Lifestyle's sales are on credit. As a result, Lifestyle often collects cash from the sales several months after Christmas. Assume on November 1, Year 1, Lifestyle borrowed $8 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 10 percent payable at maturity. The accounting period ends December 31.
I. Give the journal entry to record the note on November 1, Year 1.
II. Give any adjusting entry required on December 31, Year 1.
III. Give the journal entry to record payment of the note and interest on the maturity date, April 30, Year 2, assuming that interest has not been recorded since December 31, Year 1.