Joni Corporation borrows $500,000 from Friendly Bank on February 1, Year One. Th

Question

Joni Corporation borrows $500,000 from Friendly Bank on February 1, Year One. The principal will not be repaid until the end of six years, but interest payments are due every February 1 and August 1 beginning on August 1, Year One. The interest rate is 4 percent annually. Record the journal entry or adjusting entry necessary for each of the following.

a. The signing of the loan on February 1, Year One.

b. The payment of interest on August 1, Year One.

c. The recognition of accrued interest on December 31, Year One.

d. The payment of interest on February 1, Year Two.

Explanation / Answer

a Cash   500000       Notes payable 500000 b Interest expense 10000 =500000*4%/2       Cash 10000 c Interest expense 8333.33 =500000*4%/12*5       Interest payable 8333.33 d Interest expense 1666.67 =500000*4%/12*1 Interest payable 8333.33       Cash 10000.00

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