Wygant Corporation borrowed $370,000 on October 1 last year. The note carried a 11% interest rate with the principal and interest payable on May 1 this year. Prepare the journal entry to record the following transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Question

Rohan Hampton

Business

30 July, 17:11

Wygant Corporation borrowed $370,000 on October 1 last year. The note carried a 11% interest rate with the principal and interest payable on May 1 this year. Prepare the journal entry to record the following transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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Dakota Camacho · Answer 1

The journal entry made to record the note on October 1:

Dr Cash 370,000

Cr Note payable 370,000

Accrued interest by December 31 = principal x interest rate x time

= $370,000 x 11% x 3/12 = $10,175

The adjusting journal entry recorded on December 31:

Dr Interest expense 10,175

Cr Accrued interest payable 10,175

Accrual accounting requires that all revenues and expenses must be recognized during the same period as they actually occur, not necessarily when they are collected or paid for.