Class: Acc- Date: Name: an 2. On January 1 Luther C issued a S 1,000,000 5 year,
ID: 2596370 • Letter: C
Question
Class: Acc- Date: Name: an 2. On January 1 Luther C issued a S 1,000,000 5 year, 8% installment note payable with payments of S200,000 principal plus interest due on January 1 of each year for the next 5 years. (a) Prepare the adjusting journal entry at December 31 to accrue interest for the year. (b) Show the account(s) and amount(s) and where it will appear on a multi-step income statement prepared on December 31, (e) Show the account(s) and amount(s) and where they will appear on a classified balance sheet prepared on December 31Explanation / Answer
a) Interest expense (1000000*8%) 80000 Interest payable 80000 b) The Accounts 'Interest expense' of $80,000 will appear after Operating Income' under the sub-heading Other non-operating income/(expenses) c) Under Balance sheet, the account 'Interest payable' will be shown under 'Current liabilities' at $80,000 Note: The above amount of $80,000 is for the 1st year. Though the accounts affected, the entries and the presentation in Income statement and Balance sheet will not differ for the subsequent years, the amounts will be: 2nd year - $64000 (8% on 800000) 3rd year - $48000 (8% on 600000) 2nd year - $32000 (8% on 400000) 2nd year - $16000 (8% on 200000)