Question

Kelly Jones and Tami Crawford borrowed $13,200 on a 7-month, 5% note from Gem State Bank to open their business, Crane’s Coffee House. The money was borrowed on June 1, 2022, and the note matures January 1, 2023.

Answer 1

Answer:

A) Prepare the entry to record the receipt of funds from the loan

                                                                             Dr                         Cr

                                                                              $                           $

Cash                                                                  13,200

Notes Payable                                                                                13,200

Being the receipt of funds from the ban

B) Prepare the entry to accrue the interest on June 30

                                                                            Dr                         Cr

                                                                            $                           $

Interest Expense (13200 * 0.05 * 1/12)              55

Interest Payable                                                                               55

Being accrued interest as at month end June 30

C) Assuming the adjusting entries are made at the end of each month, determine the balance in the interest payable account as at December 31, 2020

= Monthly accrued interest * number of months = 55 * 7 = $385

D) Prepare the entries required on January 1, 2023 when the loan is paid back:

                                                                              Dr                         Cr

                                                                              $                           $

Notes Payable                                                  13,200

Interest Payable                                                    385

Cash                                                                                                  13,585

Being refund of loan

Explanation: