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12 August, 20:38

on september 30 world co. borrowed $1,000,000 on a 9% note payable. World paid the first of four quarterly payments of $264,200 when due on December 30. Provide the appropriate adjusting entry for the note at December 31

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  1. 12 August, 21:00
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    Answer: The appropriate entry for the note payable as at 31 December is $758,300.

    Explanation: The interest expense on the note is calculated as: $1,000,000 * 9/12 * 3/12 months = $22,500. The amount paid for the first of the quarterly payment was $264,200. Therefore, note principal repayment can be derived by subtracting the interes accrued from the actual payment, that is, $264,200 minus $22,500 = $241,700. To get the principal note balance, you would subtract $241,700 from $1,000,000, leaving a balance of $758,300.

    The appropriate adjusting entries would be:

    On 30 September: Debit Cash $1,000,000, Credit Note payable (current liabilities) $1,000,000

    Monthly interest accrual: Dr Interest expense $7,500 Credit Interest payable $7,500

    On first payment of the quarter, the entity would raise these entries: Dr Interes payable $22,500, Dr note payable (current liabilities) $241,700 Credit Cash $264,200.
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