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12 March, 12:20

midshipmen Company borrows $17,500 from Falcon Company on July 1, 2021. Midshipmen repays the amount borrowed and pays interest of 12% (1%/month) on June 30, 2022. Required: 1&2. Record the necessary entries in the Journal Entry Worksheet below. 3. Calculate the 2021 year-end adjusted balances of Interest Payable and Interest Expense (assuming the balance of Interest Payable at the beginning of the year is $0).

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  1. 12 March, 14:42
    0
    1.

    July 1, 2021

    Dr Cash $17,500

    Cr Note Payable $17,500

    (Borrowed from Falcon company for a 12% note)

    2. Dr Interest expense $6,300

    Cr Interest payable$6,300

    3. The balance of interest expense and interest payable on Dec 31 2021 is $6,300

    Explanation:

    1. Journal entries

    July 1, 2021

    Dr Cash $17,500

    Cr Note Payable $17,500

    (Borrowed from Falcon company for a 12% note)

    2. Dr Interest expense $6,300

    Cr Interest payable$6,300

    3. The balance of interest expense and interest payable on Dec 31 2021 is $6,300

    On December 31 2021 Interest expenses has accrued 6% July to December 30

    Interest for month is equal $17,500*1%=$175

    For 6 months = $1,050*6=$6,300

    Thus $6,300 of interest expense should be recognized.
  2. 12 March, 15:33
    0
    Debit Credit

    July 2021

    Cash 17,500

    Loan payable 17,500

    June 30, 2022

    Loan Payable 17,500

    Interest payable 2,100

    Cash 19,600

    Adjusting Entry's

    Debit Credit

    Interest expense 1050

    Interest Payable 1050

    Explanation:

    Interest for the year = 0.12*17500=2100

    Interest expense 2021 = 6/12*2100 = 1050
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