Prepare all journal entries for Grace Herron for the first 2 fiscal years ended

Question

Prepare all journal entries for Grace Herron for the first 2 fiscal years ended June 30, 2014, and June 30, 2015. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Grace Herron has just approached a venture capitalist for financing for her new business venture, the development of a local ski hill. On July 1, 2013, Grace was loaned $252,000 at an annual interest rate of 8%. The loan is repayable over 5 years in annual installments of $63,115, principal and interest, due each June 30. The first payment is due June 30, 2014. Grace uses the effective-interest method for amortizing debt. Her ski hill companys year-end will be June 30. Grace Herron has just approached a venture capitalist for financing for her new business venture, the development of a local ski hill. On July 1, 2013, Grace was loaned $252,000 at an annual interest rate of 8%. The loan is repayable over 5 years in annual installments of $63,115, principal and interest, due each June 30. The first payment is due June 30, 2014. Grace uses the effective-interest method for amortizing debt. Her ski hill company's year-end will be June 30. Prepare all journal entries for Grace Herron for the first 2 fiscal years ended June 30, 2014, and June 30, 2015. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

Effective Interest for Amortization of debt:

Period

Cash Payment

Interest Expense

Principal Reduction

Balance $

1-Jul-13

252,000

30-Jun-14

63,115

20,160

42,955

209,045

30-Jun-15

63,115

16,724

46,391

162,654

30-Jun-16

63,115

13,012

50,103

112,551

30-Jun-17

63,115

9,004

54,111

58,440

30-Jun-18

63,115

4,675

58,440

0

Explanation:

The cash payment is the same in every year = $63,115. The interest expense = 8% of the balance as of the previous year. So for 30-Jun-14, interest expense = 8%

Period

Cash Payment

Interest Expense

Principal Reduction

Balance $

1-Jul-13

252,000

30-Jun-14

63,115

20,160

42,955

209,045

30-Jun-15

63,115

16,724

46,391

162,654

30-Jun-16

63,115

13,012

50,103

112,551

30-Jun-17

63,115

9,004

54,111

58,440

30-Jun-18

63,115

4,675

58,440

0

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---