I know the journal entry for this, but what would be the adjusting entry for it?
ID: 2712468 • Letter: I
Question
I know the journal entry for this, but what would be the adjusting entry for it? Current maturities of long term debt? Interest expense? Accured expense? Tucker Boats purchased boat moving equipment, office furniture, and boat repair machinery. Tucker Boats paid $6,880 in cash and signed a four-year, 9.6%, $20,000 installment note payable to First National Bank. Equal monthly principal and interest payments of $503.42 are due the 5th of each month, beginning October 6. (The note assumes a 360-day year and 30 days of interest charged for each full month. Months with 31 days accrue only 30 days of interest, but so does September. The date the loan is signed bears interest. Interest is accrued to the nearest penny.)
Explanation / Answer
The Adjustment entries for the year ended 31st December are:
1. Long termdebt A/c Dr $980.37
To Current Maturities on long term $980.37
(Principle liability in the instalment of 2 months 25 days)
2. Interest Expenses A/c Dr $445.99
To Profit & Loss A/c $ 445.99
(Interest expenses in the instalment of 2 months 25 days)
3. Accured Expenses A/c Dr $406.11
To Profit & Loss A/c $406.11
(Accured expenses for 2 months 25 days)
The total log term debt is $20000 and Interest for 4 years in the instalment is $4164.16