On December 1, 2019, Jim’s Java Joint borrowed $50,000 from its bank in order to

Question

On December 1, 2019, Jim’s Java Joint borrowed $50,000 from its bank in order to expand its operations. The firm issued a four-month, 6 percent note for $50,000 to the bank and received $49,000 in cash because the bank deducted the interest for the entire period in advance. In general journal form, show the entry that would be made to record this transaction and the adjustment for prepaid interest that should be recorded on the firm’s worksheet for the year ended December 31, 2019.

Journal entry worksheet 2 Record the borrowing. Note: Enter debits before credits. Date General Journal Debit Credit Dec 01, 2019 Cash 49,000 Prepaid insurance Notes payable 1,000 50,000 Record entry Clear entry View general journal

Explanation / Answer

1-Dec Cash 49000 Prepaid interest 1000        Notes payable 50000 31-Dec Interest expense 250 =50000*6%/12        Prepaid interest 250

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