Scrimiger Paints wants to upgrade its machinery and on September 20 takes out a loan from the bank in the amount of $550,000. The terms of the loan are 3.2% annual interest rate and payable in 8 months. Interest is due in equal payments each month.A. Compute the interest expense due each month. If required, round final answer to two decimal places.$fill in the blank 952ef7fa1025f8a_1B. Show the journal entry to recognize the interest payment on October 20, and the entry for payment of the short-term note and final interest payment on May 20. If required, round final answers to two decimal places. If an amount box does not require an entry, leave it blank.Oct. 20 fill in the blankfill in the blank fill in the blankfill in the blankMay 20 fill in the blankfill in the blank fill in the blankfill in the blank fill in the blankfill in the blank Scrimiger Paints wants to upgrade its machinery and on September 20 takes out a loan from the bank inthe amount of $550,000. The terms of the loan are 3.2% annual interest rate and payable in 8 months.Interest is due in equal payments each month.A. Compute the interest expense due each month. If required, round final answer to two decimalplaces.$4B. Show the journal entry to recognize the interest payment on October 20, and the entry for paymentof the short-term note and final interest payment on May 20. If required, round final answers totwo decimal places. If an amount box does not require an entry, leave it blank.Oct. 20May 20

Note Payable: Notes Payable are written agreements in which a party agrees to pay the other party a certain amount of cash. It can be considered as a loan taken from the bank for the purchase of assets or for any capital expenditure incurred for upgrading its assets. In the given question, S P has incurred capital expenditure for upgrading its machinery by taking a loan from the bank and agrees and signs a note that will be paid after 9 months. The accounting treatment for payment of the loan taken is recorded by including the interest payment. Therefore, the journal entry is recorded as under: Notes Payable A/c Dr. Amount Interest Payable A/c Dr. Amount Cash A/c Cr. Amount Interest Payable: When any loan is taken, it is to be repaid along with an interest rate charged by the party or bank. Therefore, here we are given that the interest rate charged is the annual rate at 3.20% and which needs to be paid for 9 months. Therefore, we will now calculate the amount interest amount as discussed above in our solution and pass the journal entry for the monthly interest payment accrual as required. The accounting treatment of the interest accrual is as under: Interest Expense A/c Dr. Amount Interest Payable A/c Cr. Amount Subquestion A: Calculation of Interest Expenses Here, the given information is as under: Principal Value = $550,000 Interest Rate= 3.20% Maturity = 9 months Now, the interest expense incurred for one month is: Interest Expenses = Principal Amount*Interest Rate/12 months = $550,000*3.20%/12 months = $1,466.67 Therefore, the interest expense per month is $1,466.67. The journal entry for the interest incurred is: Subquestion 2: Recording the journal Entry for the payment of the Loan taken also the interest incurred for the one month. As discussed earlier, the payable entry is also been recorded and understood. Therefore, the journal entries are recorded as under: Date Particulars Debit $ Credit $ 30-Oct Interest Expenses A/c Dr. $1,466.67 Interest Payable A/c Cr. $1,466.67 (Being interest expense accrued for each month of $1,466.67.) 20-May Note Payable A/c $550,000.00 Interest Payable A/c Dr. $13,200.03 Cash A/c Cr. $563,200.03 (Being the note borrowed from the bank of $550,000 is paid off along with 9 months interest expenses accrued.) Total $564,666.70 $564,666.70 Conclusion: To conclude, we have calculated the interest expense incurred for one month also recorded the journal entries as required.

Answered: Scrimiger Paints wants to upgrade its…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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