Question

Adjusting Entries for Interest The following note transactions occurred during the year for Towne Company: Nov. 25 Towne issued a 90-day, nine percent note payable for $8,000 to Hyatt Company for merchandise. Dec. 7 Towne signed a 120-day, $30,000 note at the bank at ten percent. Dec . 22 Towne gave Barr, Inc., a $12,000, four percent, 60-day note in payment of account. Prepare the general journal entries necessary to adjust the interest accounts at December 31. Use 360 days for calculations and round to the nearest dollar.

Answer 1

Answer:

31st December

Dr Interest expenses                 72

Cr Interest Payable                   72

(to record interest expenses payable as at 31st December for note owed to Hyatt)

Dr Interest expenses                 200

Cr Interest Payable                   200

(to record interest expenses payable as at 31st December for note owed to the Bank)

Dr Interest expenses                 12

Cr Interest Payable                   12

(to record interest expenses payable as at 31st December for note owed to Towne)

Explanation:

The total interest expenses payable as at 31st December is calculated for each creditors as below:

- 36 days Interest expenses owed to Hyatt: 36/360 * 9% * 8,000 = $72.

- 24 days Interest expenses owed to the Bank: 24/360 x 10% x 30,000 = $200.

- 9 days Interest expenses owed to Towne: 9/360 x 4% x 12,000 = $12.