Question

On January 1, Luther Co. issued a $1,000,000, five-year, 8% installment note payable with payments of $250,456 principal plus interest due on January 1 of each year for the next five years.
Required:

1. Prepare the adjusting journal entry at December 31 to accrue interest for the year. Refer to the Chart of Accounts for exact wording of account titles.
2. Show the account(s) and amount(s) and where it(they) will appear on a multi-step income statement prepared on December 31.
3.
Show the account(s) and amount(s) and where it(they) will appear on a classified balance sheet prepared on December 31.

Show the account(s) and amount(s) and where it(they) will appear on a classified balance sheet prepared on December 31. Refer to the lists of Amount Descriptions for the exact wording of the answer choices for text entries.

Answer 1

Answer:

1. Debit interest expense $80000, Credit Interest payable ( accrued interest) $80000.

2. Income statement  for 31 December year end

Profit before interest expense

interest expense $80,000

3. Balance Sheet as at 31 Dec

non_current liabilities

Notes payable     =$ 749544

Current Liabilities

short term notes payable = $250456

Explanation:

Interest for the year = 1000000*0.08= 80000