To determine Prepare journal entries for the given transactions. Explanation Liabilities: Liabilities are debt and obligations of a business. These are the claims against the resources that a business owes to outsiders of the company. Liabilities may be Current liabilities, and Long-term liabilities. Examples: Creditors, Bills payable, Bank overdraft, Salaries and wages payable, and Notes payable. Short-term notes payable: Short-term notes payable is a written promise made by the business to pay a certain amount on a future date, with certain percentage of interest within a year. It is generally issue by the company to meet its short-term financing needs. Journal entry to record the issuance of notes payable on October 1, 2017: Date Accounts and Explanation Post Ref Debit ($) Credit ($) 2017 Cash 50,000 October 1 Short-Term Notes Payable 50,000 (To record the issuance of notes payable) Table (1) Cash is an asset and it increases the value of assets. So, debit it by $50,000. Short-term notes payable is a liability and it increases the value of liabilities. So, credit it by $50,000. Journal entry to record the interest accrued on the note on December 31, 2017: Date Accounts and Explanation Post Ref Debit ($) Credit ($) 2017 Interest Expense (1) 750 December 31 Interest Payable 750 (To record the accrual of interest due on note) Table (2) Interest expense is a component of stockholder’s equity and it decreases the equity value. So, debit it by $750. Interest payable is a liability and it increases the value of liabilities. So, credit it by $750. Working note (1): Calculate the value of interest expense. Interest expense = Principal amount × Rate of interest × Time = $ 50 , 000 × 6 100 × 3 12 = $ 750 Journal entry to record the payment of interest on March 31, 2018: Date Accounts and Explanation Post Ref Debit ($) Credit ($) 2018 Interest Payable 750 March 31 Interest Expense (2) 750 Cash 1,500 (To record the payment of interest) Table (3) Interest Payable is a liability and it decreases the value of liabilities

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ISBN: 9781260664386

Author: PHILLIPS, LIBB

Publisher: MCG

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Chapter 10, Problem 1CC

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Prepare journal entries for the given transactions.

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Chapter 10 Solutions

FUNDAMENTALS OF FINANCIAL ACCOUNTING

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