Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. For example, Mattel builds up its inventory to meet the needs of retailers selling to Christmas shoppers. A large portion of Mattel's sales are on credit. As a result, Mattel often collects cash from its sales several months after Christmas. Assume on November 1, 2018, Mattel borrowed $6 million cash from Metropolitan Bank and signed a promissory note that matures in six months. The interest rate was 8.0 percent payable at maturity. The accounting period ends December 31. Required:
1, 2 & 3. Prepare the required journal entries to record the note on November 1, 2018, interest on the maturity date, April 30, 2019, assuming that interest has not been recorded since December 31, 2018

1. Nov 1, 2018

  Cash                                           6,000,000

     Notes Payable (short-term)                      6,000,000

2. Dec 31, 2018

  Interest Expense                       80,000

     Interest Payable                                        80,000

3. Apr 30, 2019

  Notes payable (short-term)       6,000,000

  Interest Payable                              80,000

  Interest Expense                            160,000

     Cash                                                           6,240,000

Explanation:

1. $6,000,000 cash Mattel acquired from Metropolitan Bank for signing a short-term note (matures in six months).

2. 6,000,000 x .08 x 2/12 = 80,000

   2 months (Nov and Dec) time that Mattel accrued $80,000 worth of interest.

3. The note was signed for 6,000,000.

    Interest payable is the amount that was accrued from the last year, but hasn't been paid yet for $80,000.

    Interest expense is the interest amount that is from the current year and is being repaid for $160,000.

    Cash is the total (the principal payment and the interest) that Mattel is paying the bank back for borrowing for $6,240,000.

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