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10 July, 16:26

1. Loan 1 is a 4%, 5-year balloon loan for $3,000,000 with interest due and paid annually on December 31. Drake records interest annually on December 31. Drake incorrectly recorded the journal entry for the Year 1 interest expense and payment as a debit to accrued interest payable and a credit to cash. Prepare the net journal entry to correct Year 1 and properly record the interest attributable to the loan as of and for the year ended December 31, Year 2.

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  1. 10 July, 20:09
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    Loan 3000000

    Interest 4%

    There are three steps to solve correction of errors entries

    Step-1 what entry have been made

    Step-2 what should be the actual entry.

    Step-3 what should be net entry to make it correct.

    Step-1 what entry have been made

    Accrued Expense payble 3000000*4% 120000

    Cash 120000

    Wrong entry that has been in books. instead of recording expense we have reduced the liability by debiting it.

    Step-2 what should be the actual entry.

    interest Expense 3000000*4% 120000

    Cash 120000

    The correct entry that should have been made

    Step-3 what should be net entry to make it correct.

    interest Expense 3000000*4% 120000

    Accrued Expense payble 3000000*4% 120000

    Now we have debited the expense that should be recorded and to increase the laibility we have credited the liability that have been decreased in entry 1.
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