Jurassic Jumpers Co. (JJ Co.) offers bungee jumping for those looking for an ext
ID: 2341061 • Letter: J
Question
Jurassic Jumpers Co. (JJ Co.) offers bungee jumping for those looking for an extreme activity. JJ Co. prepares annual financial statements and has a December 31, 2017 year-end.
a. On April 1, 2017, JJ Co. took out a five-year, $890,000 bank loan with an interest rate of 3%. Interest expense is paid on the first day of each month.
b. On July 1, 2017, JJ Co. issued a two-year, $70,000 Note Receivable with an interest rate of 4%. Interest income will be collected on January 1 and July 1 of each year.
c. On December 15, 2017, JJ Co. took a university student club bungee jumping for $2,750. The student club was invoiced on 31 December 2017 and pays JJ Co. on January 15, 2018.
Required:
Record the adjusting journal entries at December 31, 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Explanation / Answer
Adjusting Entries
Date
General Journal
Debit
Credit
31-Dec
Interest Expense
$ 2,225.00
Interest Payable
$ 2,225.00
(Interest payable for the month of December)
31-Dec
Interest Receivable
$ 1,400.00
Interest Revenue
$ 1,400.00
(Interest revenue for 6 months recorded)
31-Dec
Accounts Receivable
$ 2,750.00
Service revenue
$ 2,750.00
(Service revenue earned but not billed)
Notes
Interest Expense on bank loan will be recorded for one month only because November’s interest would have already been paid on 1st December. December’s interest will be paid on 1st January which will be recorded as a liability.
Interest on Notes receivable is recoded for 6 months from July 1 to December 31 to be received on 1st January.
Adjusting Entries
Date
General Journal
Debit
Credit
31-Dec
Interest Expense
$ 2,225.00
Interest Payable
$ 2,225.00
(Interest payable for the month of December)
31-Dec
Interest Receivable
$ 1,400.00
Interest Revenue
$ 1,400.00
(Interest revenue for 6 months recorded)
31-Dec
Accounts Receivable
$ 2,750.00
Service revenue
$ 2,750.00
(Service revenue earned but not billed)
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