Question

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).

Answer 1

Answer:

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.

Answer 2

Answer:

                                        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