Question

On April 1, 2020, our hospital buys an MRI machine for $1,000,000. It is financed for...

On April 1, 2020, our hospital buys an MRI machine for $1,000,000. It is financed for 5 years at 6% annual interest. Interest is paid each year on March 31. The entire $1,000,000 of principle is paid on March 31, 2025.

Give the December 31,2020 journal entry to record the interest for the year to date, and the March 31, 2021 journal entry to make the first interest payment.

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Answer #1

Journal Entry to record the interest for the year 31st December 2020

Interest A/c Dr. $60,000

to Accrued interest A/c $60,000

Accured interest Account is also known as Interest payable account

Journal Entry to record the 1st Interest payment for the year 31st March 2021

Accured Interest A/c Dr. $60,000

to Bank A/c $60,000

Calculation of interest amount

Cost of the machinery= $1,000,000

Interest rate= 6%

Therefore intererst to be paid every year= $100,000*6/100=$60,000

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