Question

Crane Company borrows $50,600 on July 1 from the bank by signing a $50,600, 11%, one-year note payable. (a) Prepare the journal entry to record the proceeds of the note. (b) Prepare the journal entry to record accrued interest at December 31, assuming adjusting entries are made only at the end of the year.

Answer 1

a) July 1

Dr - Bank $50,600

Cr - Notes Payable. $50,600

b) Dec 31

Calculate the interest

$50,600*11% / 12 *6 = $2,783

Dr - interest Expense $2,783

Cr - Interest Payable. $2,783

Answer 2

Step-by-step explanation:

The journal entries are shown below:

(A) Cash A/c Dr $50,600

To Notes payable A/c $50,600

(Being note is issued for cash)

(B) Interest expense A/c Dr $2,783

To Interest payable A/c $2,783

(Being accrued interest adjusted)

The computation is shown below:

= Principal × rate of interest × number of month ÷ (total number of months in a year)

= $50,600 × 11% × (6 months ÷ 12 months)

= $2,783

The six month is calculated from the July 1 to December 31