Consider the following note payable transactions of Cabico Video Productions 201
ID: 2584005 • Letter: C
Question
Consider the following note payable transactions of Cabico Video Productions 2015 Jun. 1 Purchased equipment costing $14,000 by issuing a one-year, 3% note payable. Dec. 31 Accrued interest on the note payable. 2016 Jun. 1 Paid the note payable plus interest at maturity. Journalize the transactions for the company. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Purchased equipment in exchange for one year, 3% note 1, 2015: Accrued interest Date Accounts and Explanation Debit Credit 2015 Interest Expense Dec. 31Interest Payable Accrued interest expense at year-end.Explanation / Answer
Notes:
1. Bonds were purchased on Jun 1. Interest is accrued on Dec 31. Hence, 7 months interest has accrued (Jun to Dec)
2. Annual interest = $ 14,000 X 3% = $ 420
3. Monthly interest = $ 420/ 12 = $ 35
4. Accrued interest for 7 months = $ 35 X 7 months = $ 245
Date Accounts and Explanation Debit Credit Dec 31, 2015 Interest Expense $ 245 Interest Payable $ 245 (Accrued interest expense at year end)