Question

On December 1, Spencer Department Store borrowed $19,250 from First Bank and Trust. Spencer signed a 90-day note with a face amount of $20,000. The interest rate stated on the face of the note is 15 percent per year.
Required:
a. Provide the journal entry recorded by Spencer on December 1.
b. Provide the adjusting entry recorded by Spencer on December 31 before financial statements are prepared.

Answer 1

Answer:

A. Dr Cash $19,250

Dr Discount on notes payable $750

Cr Notes Payable $20,000

B. Dr Adjusting entries:Interest expense $250

Cr Discount on notes payable $250

Explanation:

A.Preparation of the journal entry recorded by Spencer on December 1.

Dr Cash $19,250

Dr Discount on notes payable $750

($20,000-$19,250)

Cr Notes Payable $20,000

(Being a journal entry to recognize short-term note payable issued)

b. Preparation of the adjusting entry recorded by Spencer on December 31 before financial statements are prepared. Show

Since the nterest for three months is the amount of $750 which means that the Per month interest amount will be calculated as : $750/3 = $250

Dr Adjusting entries:Interest expense $250

Cr Discount on notes payable $250