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Interest of $500 is accrued on the $20,000 notes payable.

Resolved Question:

Interest of $500 is accrued on the $20,000 notes payable. Need to show the adjusting entries at March 31, assuming that the entries are made quarterly.
Submitted: 3 years ago.
Category: Homework
Expert:  SuperiorTutor replied 3 years ago.

Hello,

 

The entry would be,

 

March . 31 D Interest expenses $500
_________C Interest payable $500

 

Thanks.

Customer: replied 3 years ago.

I already found that same type of scenario on line, but it still doesn't tell me what happens to the notes payable of $20,000. Where does the 20,000 get placed on the journal?

Expert:  SuperiorTutor replied 3 years ago.

Actually, the notes payable of $20,000 would be part of the equipment/etc. the company must have purchased.

 

I can explain it to you with the following example:

 

The Flower Lady signed a $10,000 three-year note with interest of 10% on July 1 in exchange for a piece of equipment. The interest is due and payable quarterly on Oct. 1, Jan. 1, April 1, and July 1. The Flower Lady operates on a calendar-year basis and issues financial statements at the end of each quarter. A long-term note payable must be recorded as of July 1 with interest accrued at the end of each quarter. The entries related to the note for the current year are:

For the current year:

General Journal

Date

Account Title and Description

Ref.

Debit

Credit

20X0

July 1

Equipment

10,000

Notes Payable

10,000

To finance purchase of equipment

Sept. 30

Interest Expense ($10,000 × 10% ×3/12)

250

Interest Payable

250

To accrue 3rd quarter interest

Oct. 1

Interest Payable

250

Cash

250

To pay interest

Interest Payable

250

To accrue 4th quarter interest

 

In the final year, the June 30 quarterly interest accrual and July 1 payoff would be as shown.

 

General Journal

Date

Account Title and Description

Ref.

Debit

Credit

20X3

June 30

Interest Expense ($10,000 × 10% ×3/12)

250

Interest Payable

250

To accrue 2nd quarter interest

July 1

Notes Payable

10,000

Interest Payable

250

Cash

10,250

To pay off note and interest due


If you want I can explain it to you w.r.t to the data of this particular question. Please post the rest of the data and I will explain how interest gets adjusted and how notes payable are accounted for.

 

Thanks.

Customer: replied 3 years ago.

You are probably telling me and I still don't get it. Let me provide you with what I have as the scenario and see if that will help me.

 

The ledger at Piper Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.

 

Debit Credit

Prepaid Insurance $3,600

Supplies 2,800

Equipment 25,000

Accumulated Depreciation

Equipment $8,400

Notes Payable 20,000

Unearned Rent 9,900

Rent Revenue 60,000

Interest Expense -0-

Wages Expense 14,000

 

An analysis of the accounts shows the following:

1. The equipment depreciates $400 per month

2. One-third of the unearned rent was earned during the quarter

3. Interest of $500 is accrued on the notes payable

4. Supplies on hand total $700

5. Insurance expires at the rate of $200 per month

 

Instructions:

Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Adjusting accounts are: Depreciation Expense, Insurance Expense, Interest Payable and Supplies Expense.

 

This is what I have so far and I believe I also need to do all the journal entries with explanation.

 

Date Accounts Title Debit Credit

March 31 Insurance Expense 600

Prepaid Expense 600

31 Supplies Expense 2,100

Supplies ($2800-700) 2,100

31 Interest Expense 500

Interest Payable 500

31 Unearned Rent 3,300

Rent revenue 3,300

31 Depreciation Expense-Equipment 1,200

Accumulated Depreciation-

Equipment 1,200

Customer: replied 3 years ago.
Yes, need to know if I were doing a journal entry with the information illustrated above how I would show the interest accured of $500 on the notes payable
Expert:  SuperiorTutor replied 3 years ago.
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Category: Homework
Satisfied Customers: 227
Experience: BBA in Finance and Accounting
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