Question

Natalie is thinking of repaying all amounts outstanding to her grandmother. Recall that Cookie Creations borrowed $2,000 on November 16, 2017, from Natalie's grandmother. Interest on the note is 9% per year, and the note plus interest was to be repaid in 24 months. Recall that a monthly adjusting journal entry was prepared for the months of November 2017 (1/2 month), December 2017, and January 2018. (a) Calculate the interest payable that was accrued and recorded to January 31, 2018. Round to nearest dollar. (b) Calculate the total interest expense and interest payable from February 1 to August 31, 2018. Prepare the journal entry at August 31, 2018, to bring the accounting records up to date. Round to nearest dollar. (c) Natalie repays her grandmother on September 15, 2018-10 months after her grandmother extended the loan to Cookie Creations. Prepare the journal entry for the loan repayment.

Answer 1

Answer:a) interest payable $540, b) total interest expense for seven months $1,260, interest payable $2,520, c) loan repayment interest after 10 month $1,800

Total amount repaid $3,800

Step-by-step explanation:

To calculate the simple interest on the loan

SI = Principal × Rate × Time/100

Principal =$2,000, Rate = 9%, T = 24 months

2,000 × 9 × 24/100

= 432,000/100

= 4,320

Amount = interest + Principal

4,320 + 2000 = 6,320

To calculate the monthly interest

4,320÷ 12 = 360

Therefore the amount interest payable accrued recorded

= 360,× 1/2

= 180 each month

For November, December, January will be

180 ×3 = 540

Journal entry

Interest expense Dr : $540

Interest payable. Cr :$540

b)

To calculate interest expense, we use the formula

Principal =$2,000 Rate = 9%, T = 7 months

P × R × T / 100

2000 × 9 × 7 /100

= 126,000÷ 100

= 1,260

Therefore to calculate interest payable, Since the simple interest

= $4,320, we will first calculate for the monthly interest

4,320÷12 = 360

Therefore the interest payable for 7 months

= 360 × 7

= 2,520

Journal entry

Interest payable Cr : $2,520

Less Interest expenseDr : $1260

Balance c/d Dr :$ 1,260

Total balance Dr $2,520, Total balance Cr : $2,520

c)

To calculate the repayment of the loan by Natalie ten month after the grandmother extended the loan. Using the formula SI = Principal × Rate × Time /100

Principal = $2,000, Rate 9%, Time = 10 months

2,000 × 9 × 10 / 100

= 180,000 ÷ 100

= 1,800

Amount = interest + Principal

= 1,800 + 2,000

= 3,800

Journal entry

Loan account Dr: $2,000

Loan interest Dr: $$1,800

Bank Account Cr: $3,800

Total balance Dr :$ 3,800 ,

Total balance Cr: $3,800

Answer 2

Cash 2,000 debit

Note payable 2,000 credit

--to record signing of the note--

interest expense 7.50 debit

interest payable 7.50 credit

--adjustment for the half-month--

interest expense 15 debit

interest payable 15 credit

--adjustment for december-

interest expense 15 debit

interest payable 15 credit

--adjustment for january-

interest expense 105 debit

interest payable 105 credit

--adjustment for August 31th-

Note payable 2,000 debit

interest payable 142.5 debit

interest expense 7.5 debit

cash 2,150 credit

--to record honor of the note--

Step-by-step explanation:

interest for half-month :

2,000 x 9% x 0.5 / 12 = $7.50

interest for a month :

2,000 x 9% x 1/12 = $15.00

For February 1st to August 31th:

$15 dollar per month x 7 months = $105

honor of the note at September 15th:

nterest for half-month :

2,000 x 9% x 0.5 / 12 = $7.50

Total interest accrued: 7.5 + 15 + 15 + 105 = 142.5