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21 June, 20:55

On October 1, Bramble's Carpet Service borrows $362000 from First District Bank on a 3-month, $362000, 6% note. What entry must Bramble's Carpet Service make on December 31 before financial statements are prepared?

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  1. 21 June, 22:23
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    Dr Interest expense - $21,720

    Cr interest Payable - $21,720

    Explanation:

    Interest

    Since it is a short-time loan (3-month), the interest rate will be prorated to 3-month.

    Interest expense = $362,000 *.06 * 3/12 = $21,720

    Hence, following entries will be recorded:

    Dr Interest expense - $21,720

    Cr interest Payable - $21,720

    For Principal amount Borrowed:

    Cr Loan payable $362000

    Dr. Bank Account $362000

    Upon Settlement:

    Dr. Interest Payable $21,720 and Cr Bank Account $21,720

    Dr. Loan payable $362000 and Cr Bank Account $362000
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Home » Business » On October 1, Bramble's Carpet Service borrows $362000 from First District Bank on a 3-month, $362000, 6% note. What entry must Bramble's Carpet Service make on December 31 before financial statements are prepared?
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