Question

On November 1, 2012, The Bagel Factory signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2013. The Bagel Factory records the appropriate adjusting entry for the note on December 31, 2012. In recording the payment of the note plus accrued interest at maturity on May 1, 2013, The Bagel Factory would

Answer 1

interest expense 2,000

interest payable 1,000

note payable 100,000

cash 103,000

Step-by-step explanation:

We will check the accrued interest at year-end:

notice the rate is annual so we convert for the mont we need in each case:

Nov 1st to Dec 31th = 2 months

0.06 x 2/12 = 0.01

100,000 x 1% = 1,000 interest payable accrued at december 31th

Then we calculate from Jan 1st to May 1st = 4 months

0.06 x 4/12 = 0.02

100,000 x 2% = 2,000 interest expense for the year 2013

entry would be the payment of this two interest, plus the principal

100,000 + 1,000 + 2,000 = 103,000

interest expense 2,000

interest payable 1,000

note payable 100,000

cash 103,000