Accounting for Notes Payable
Response to the following problem:
During 2008, Schmaal Corporation had the following transactions relating to long-term liabilities:
May 1 Purchased a machine costing $600,000 from Kretschmar Corporation. Issued a three-year, interest-bearing note with interest payable on May 1 of each year. The note matures on May 1, 2011, and carries an interest rate of 7%.
July 1 Borrowed $25,000 from South-Central National Bank. The terms of the note require semiannual payments of interest on December 31 and June 30. The note matures in two years and carries an interest rate of 6%.
Required:
1. Prepare the journal entries made on May 1 and July 1 to record the issuance of these two notes.
2. Prepare all journal entries made on December 31, 2008.
3. Prepare all journal entries made during 2009.