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17 April, 22:45

Consider the following note payable transactions of Cabal Video Productions.

Requirements

1. Journalize the transactions for the company.

2. Considering the given transactions only, what are Cabal Video Productions' total liabilities on December 31, 2019 ?

May 1, 2018 : Purchased equipment costing $ 96,000 by issuing an eight -year, 6 % note payable. The note requires annual principal payments of $ 12 comma 000 plus interest each May 1.

Dec 31, 2018: Accrued interest on the note payable.

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Answers (1)
  1. 17 April, 23:12
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    1. The Journal entries are as follows:

    (a) On May 1, 2018

    Equipment A/c Dr. $96,000

    To Notes payable $96,000

    (To record the Issuance of Note Payable)

    (b) On December 31, 2018

    Interest expense A/c Dr. $3,840

    To interest payable $3,840

    (To record the accrue interest at the end of the year)

    Time period: May 1, 2018 to December 31, 2018 = 8 months

    Interest expense:

    = $96,000 * 0.06 * (8/12)

    = $3,840

    (c) On May 1, 2019

    Notes payable A/c Dr. $12,000

    Interest payable A/c Dr. $3,840

    Interest expense A/c Dr. $1,920

    To cash $17,760

    (To record the first installment on notes payable)

    Time period: January 1, 2019 to April 30, 2019 = 4 months

    Interest expense:

    = $96,000 * 0.06 * (4/12)

    = $1,920

    (d) On December 31, 2019

    Interest expense A/c Dr. $3,360

    To interest payable $3,360

    (To record the accrue interest at the end of the year)

    Time period: May 1, 2019 to December 31, 2019 = 8 months

    Interest expense:

    = ($96,000 - $12,000) * 0.06 * (8/12)

    = $84,000 * 0.06 * (8/12)

    = $3,360

    2. Liability at December 31, 2019:

    = $3,360
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