On May 1, the company borrowed $44,000 from Bank of Collins. The loan is for fiv

Question

On May 1, the company borrowed $44,000 from Bank of Collins. The loan is for five years and bears an annual interest rate of 9%. Interest on the loan is to be paid in cash each year on April 30; the $44,000 loan amount is to be repaid in full after five years.1.

Make the adjusting entry necessary on the company's books with respect to the loan on December 31.

DEC 31             _______________________                         ___________

                                            _____________________                                 _____________

Explanation / Answer

Interest on loan = $44000 x 9% x 8/12 = $2640

On Dec 31st

Interest on Loan Account        Debit      $2640

To Interest Payable Account Credit           $2640

On April 30th

Interest on loan Account        Debit    $1320

Interest Payable Account        Dedit    $2640

To Cash Account                   Credit                 $3960

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