The entry would be,
March . 31 D Interest expenses $500_________C Interest payable $500
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?
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:
Account Title and Description
To finance purchase of equipment
Interest Expense ($10,000 × 10% ×3/12)
To accrue 3rd quarter interest
To pay interest
To accrue 4th quarter interest
In the final year, the June 30 quarterly interest accrual and July 1 payoff would be as shown.
To accrue 2nd quarter interest
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.
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.
Prepaid Insurance $3,600
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
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