Question

On August 1, the company borrowed $30,000 from a bank on a 15-year mortgage. The annual interest rate is 10%. Revenue for services performed but unrecorded for August totaled $1,100.Prepare the adjusting entries needed at August 31, 2017.

Answer 1

The Journal entries are as follows:

(i) On August 31, 2017

Interest Expenses A/c Dr. $250

To Interest payable $250

(To record Adjustment of Interest on Notes Payable)

Calculation of Interest on Notes Payable:-

Interest on Notes Payable = [($30,000 × (10/100) × (1/12)]

= $250

(ii) On August 31, 2017

Accounts Receivable A/c Dr. $1,100

To Service revenue $1,100

(To record Service Revenue unrecorded)