Mei-ling is thinking of repaying all amounts outstanding to her grandmother. Rec
ID: 2489210 • Letter: M
Question
Mei-ling is thinking of repaying all amounts outstanding to her grandmother. Recall that Matcha Creations borrowed NT$2,000 on November 16, 2017, from Mei-ling’s grandmother. Interest on the note is 6% per year, and the note plus interest was to be repaid in 24 months. Recall that a monthly adjusting journal entry was prepared for the months of November 2017 (1/2 month), December 2017, and January 2018.
Instructions
(a) Calculate the interest payable that was accrued and recorded to July 31, 2018, assuming monthly adjusting entries were made.
(b) Prepare the journal entry at August 31, 2018, to record one month’s accrued interest.
(c) Mei-ling repays her grandmother on September 15, 2018—10 months after her grandmother extended the loan to Matcha Creations. Prepare the journal entry for the loan repayment.
Explanation / Answer
Part A)
The value of interest payable is calculated as follows:
Interest Payable for 15 days from Nov 16, 2017 to Nov 30, 2017 = 2,000*6%*1/12*1/2 = NT$5
Interest Payable for the Period 1 Dec, 2017 to 31 Jul, 2018 = 2,000*6%*1/12*8 = NT$80
Total Interest Payable and Accrued to July 31, 2018 = 5 + 80 = NT$85
_________
Part B)
One month interest is calculated as follows:
Interest Payable for the Period 1 Aug, 2018 to 31 Aug, 2018 = 2,000*6%*1/12*1 = NT$10
The journal entry is as follows:
_________
Part C)
Ten months interest is calculated as follows:
Interest Payable for the Period 16 Nov, 2017 to 15 Sep, 2018 = 2,000*6%*1/12*10 = NT$100
The journal entry is as follows:
Date Account Titles Debit Credit 31 Aug 18 Interest Expense NT$10 (To record 1 month interest on notes payable) NT$10