During 2021, Cobalt Co. borrowed cash from Azores Enterprises by issuing notes payable as follows:

1. March 31, 2021, issued a one-year, 3.8% note for $107,900. Interest is payable quarterly, on June 30, September 30, and December 31, 2021, and March 31, 2022. Principal is payable at maturity.

2. June 1, 2021, issued a nine-month, 4.6% note for $75,000. Interest and principal are payable at maturity.

3. September 1, 2021, issued a three-month, 5% note for $24,400. Interest is payable monthly on the first day of the month. Principal is payable at maturity.

Both Cobalt and Azores prepare adjusting entries on an annual basis. Cobalt has a September 30 fiscal year end. Azores’ fi scal year end is October 31.

Instructions

a. Prepare all necessary journal entries for Cobalt in 2021 and 2022 regarding the notes and interest, including adjusting entries. Prepare separate adjusting entries for each note if an adjustment is required.

b. Prepare all necessary journal entries for Azores in 2021 and 2022 regarding the notes and interest, including adjusting entries. Prepare separate adjusting entries for each note if an adjustment is required.

Is it appropriate for Cobalt to have interest payable on its September 30, 2021, balance sheet if the interest isn’t payable until some point after the year end? Explain.