On October 1, 20X4, Farmer Engineering Services purchased a new laser surveying

Question

On October 1, 20X4, Farmer Engineering Services purchased a new laser surveying instrument. Farmer paid $5,000 down and executed the following promissory note:

Promissory note
For value received, the undersigned promises to pay to the order of Laser Equipment Company
the sum of: *****Twenty-Thousand and no/100 Dollars***** ($20,000.00)
Along with annual interest of 10% on the unpaid balance. This note shall mature and be payable, along with accrued interest, on September 30, 20X5.                                                                                       

October 1, 20X4 (Issue Date)       J.D. Farmer   Farmer Engineering (Maker signature)

(a) Prepare the appropriate journal entry to record the purchase on October 1, 20X4.

(b) Prepare the appropriate journal entry to record the year-end interest accrual on December 31, 20X4.

Explanation / Answer

Answer a. Journal Entry Date Particulars Dr. Amt Cr. Amt Oct-01 Equipment                                                Dr.          25,000 2014    To Cash            5,000    To Notes Payable          20,000 Answer b. Journal Entry Date Particulars Dr. Amt Cr. Amt Dec-31 Interest Exp.                                           Dr.                500 2014    To Interest Payable                500 Interest on Note Payable = 20000 X 10% X 3/12 = $500

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