Question

On June 1, Carla Vista Co. Ltd. borrows $108,000 from Acme Bank on a 6-month, $108,000, 4% note. The note matures on December 1.

1. Prepare the entry on June 1.
2. Prepare the adjusting entry on June 30.
3. Prepare the entry at maturity (December 10)
4. What was the total fancing (interest expence)?

Answer 1

a) Journal entry

Date Account and explanation Debit Credit

June 1 Cash $108,000

Notes payable $108,000

b) Adjusting entry

Date Account and explanation Debit Credit

June 30 Interest expense $360

(108,000*4%*1/12)

Interest payable $360

c) Journal entry

Date Account and explanation Debit Credit

Dec 10 Notes payable $108,000

Interest payable (360*6) $2,160

Cash $110,160

d) Total (interest expenses)

Interest payable = $360 * 6

= $2160