Question

On October 1, Sheridan's Painting Service borrows $119000 from National Bank on a 3-month, $119000, 4% note. What entry must Sheridan's Painting Service make on December 31 before financial statements are prepared?

Answer 1

Answer,

The interest expense for 3 months should account at the year end

Interest expense = $119,000x4%x3/12 = $1,190.

Journal entry is,

Debit : Interest expense $1,190

Credit : Interest payable $1,190

The note payable is for $ 119,000 on a 3-month basis, borrowed on October-1. Then this note is maturing after 3 months, which is on Decmebr-31.

Entry on the date of payment against note payable (December-31),

Debit : Note payable $119,000

Debit : Interest payable $1,190

Credit : Cash $120,190