Question

Herrindale Mart borrows $420,000 on July 1 with a short-term loan that has an annual interest rate of 5% which is payable on the first day of each subsequent quarter. What will Herrindale Mart need to accrue on August 31, assuming that no accrual has yet been made

Answer 1

August 31, 202x (assuming a 360 day year)

Dr Interest expense 1,750

Cr Interest payable 1,750

Step-by-step explanation:

The journal entry to record the loan:

July 1 , 202x

Dr Cash 420,000

Cr Notes payable 420,000

The journal entry to record accrued interest on the loan:

August 31, 202x (assuming a 360 day year)

Dr Interest expense 1,750

Cr Interest payable 1,750

Interest expense = $420,000 x 5% x 2/12 = $1,750