Question

Sheridan Company borrows $43,400 on July 1 from the bank by signing a $43,400, 8%, one-year note payable. (a) Prepare the journal entry to record the proceeds of the note. (b) Prepare the journal entry to record accrued interest at December 31, assuming adjusting entries are made only at the end of the year. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Answer 1

Answer:

Sheridan Company

Journal Entries

Sr. No                     Particulars                 Debit          Credit

1                        Cash                             $ 43,400

                        Notes Payable                                 $ 43,400

Sheridan Company borrows $43,400 on July 1 from the bank by signing a $43,400, 8%, one-year note payable.

2                     Interest Expense            $ 1736

                               Interest Payable                         $ 1736

Recorded Interest Accrued for 6 months

Explanation:

Calculation of Interest Payable

$ 43,400 * 8%= 3472

For 6 months = $ 3472/2= $ 1736

Notes Payable is a liability and interest Payable is also a liability .The Notes Payable will be due in one years time that is on 30 th June of the next year. From July to December there are 6 months so interest is calculated for 6 months.