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17 October, 11:35

On july 1, rainbow painting service borrows money from eighth national bank on a 8-month, $40,000, 5% note. interest and principal is all due on february 28. assuming any prior monthly journal entries were not made, what journal entry must rainbow painting service make on december 31 before financial statements are prepared?

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  1. 17 October, 13:29
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    Given:

    July 1 borrowed money from eight national bank on 8-month, 40,000, 5% note.

    Interest and principal is all due on February 28

    No journal entries were made.

    Recognizing cash and notes payable.

    Debit Credit

    Cash 40,000

    Notes Payable 40,000

    Interest on Notes payable

    Interest Expense 1,333

    Interest Payable 1,333

    Recognizing interest owed but not yet paid.

    40,000 * 5% * 8/12 = 1,333

    On February:

    Notes Payable 40,000

    Interest Payable 1,333

    Cash 41,333
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