Question

Kelly Jones and Tami Crawford borrowed $13,200 on a 7-month, 5% note from Gem State Bank to open their business, Crane’s Coffee House. The money was borrowed on June 1, 2022, and the note matures January 1, 2023.

Answer 1

A) Prepare the entry to record the receipt of funds from the loan

Dr Cr

$ $

Cash 13,200

Notes Payable 13,200

Being the receipt of funds from the ban

B) Prepare the entry to accrue the interest on June 30

Dr Cr

$ $

Interest Expense (13200 * 0.05 * 1/12) 55

Interest Payable 55

Being accrued interest as at month end June 30

C) Assuming the adjusting entries are made at the end of each month, determine the balance in the interest payable account as at December 31, 2020

= Monthly accrued interest * number of months = 55 * 7 = $385

D) Prepare the entries required on January 1, 2023 when the loan is paid back:

Dr Cr

$ $

Notes Payable 13,200

Interest Payable 385

Cash 13,585

Being refund of loan

Step-by-step explanation: