Question

**On July 1, 2013, Avery Services issued a 4% long-term note payable for $10,000. It is payable over a 5-year term in $2,000 principal installments on July 1 of each year. Each yearly installment will include both principal repayment of $2,000 and interest payment for the preceding one-year period. What happens on December 31, 2013 before statements are prepared?

What is the Answer?:
  
1)Avery must accrue $200 of interest expense

  
2)Avery must accrue for the coming $2,000 principal payment

  
3)Avery must pay out $200 of interest expense to the note holder

  
4)Avery does not need to take any actions

**On July 1, 2013, Avery Services issued a 4% long-term note payable for $10,000. It is payable over a 5-year term in $2,000 principal installments on July 1 of each year. Each yearly installment will include both principal repayment of $2,000 and interest payment for the preceding one-year period. Avery pays out $
_ of interest plus $
_ of principal on July 1, 2014

**Publishing Company completed the following transactions during 2016

​Oct 1: Sold a​ six-month subscription​ (starting on November​ 1), collecting cash of ​$300 , plus sales tax of 5 %

Now 15: Remitted​ (paid) the sales tax to the state of Tennessee.

Dec 31: Made the necessary adjustment at​ year-end to record the amount of subscription revenue earned during the year.

Journalize necessary transactions and show your calculations.

Answer 1

Solution:

1. Option 1 - Avery must accrue $200 of interest expense

Annual Interest	=10000*4%	400
Interest accrued Jul1 To Dec 31	=400*6/12	200

2.

July 1 2014
Principal Payment	2000
Annual Interest	400
Yearly Installment	2400

3.

Journal Entries
Oct-01	Cash	315
	Unearned Subscription Revenue		300
	Sales Tax Payable (300*5%)		15
Nov-15	Sales Tax Payable	15
	Cash		15
Dec-31	Unearned Subscription Revenue (300*2/3)	200
	Subscription Revenue		200

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