Answer to Question #316244 in Accounting for Mark

Question

On June 1, Trade Kings Company borrows $250, 000 from ATLASMARA Bank on a 6-month, $250, 000, 10% note.

Instructions

(a) Prepare the entry on June 1.

(b) Prepare the adjusting entry on June 30.

(c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been made through November 30.

(d) What was the total financing cost (interest expense)?

Answer 1

Requirement (a)

June 1

Dr : Cash / Ban.............................................250,000

Cr: Notes payable........................................250,000

Requirement (b)

June 30

Dr : Interest Expense....................................2,083.33

Cr: Interest Payable......................................2,083.33

250,000 * 10% *1/12

Requirement (c)

December 1

Dr : Notes Payale..........................................250,000

Dr: Interest payable.......................................12,500

Cr: Cash/Bank................................................262,500

250,000 *10% *6 / 12

Requirement (d)

250,000 * 10% * 6 / 12 = 12,500 (Interest Expense)