Jenny Kanne and Cindy Travis borrowed $32,800 on a 7-month, 6% note from Golden

Question

Jenny Kanne and Cindy Travis borrowed $32,800 on a 7-month, 6% note from Golden State Bank to open their business, KT's Coffee House. The money was borrowed on June 1, 2014, and the note matures January 1, 2015. Prepare the entry to record the receipt of the funds from the loan. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Prepare the entry to accrue the interest on June 30. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Assuming adjusting entries are made at the end of each month, determine the balance in the interest payable account at December 31, 2014. Prepare the entry required on January 1, 2015, when the loan is paid back. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

Working note for june 30 entry :

$32,800*6%*1/12=$164

Debit Credit 1-Jun Cash a/c $32,800.00 6% loan-Golden state bank $32,800.00 30-Jun Interest on loan a/c $164.00 Interest payable a/c $164.00 Balance in interest payable A/c at 31 dec 2014 $1,148.00 1-Jan 6% loan-Golden state bank $32,800.00 Interest payable a/c $1,148.00 Bank $33,948.00

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