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)?
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)
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