Question

You make adjusting journal entries for the month of January as needed. (Start with Journal no.

Jan21.1.) You carefully consider the following:

Sally’s last payment to Dell Finance was 12/31/20. That payment included interest through

12/31. The next payment of $150 is due on February 1. The annual interest rate (simple

interest) on the loan is 5%.

The date would be for Jan.31 . what journal entry  would be appropriate

Debit

Credit

Answer 1

As the entries for the period 12/31/20 have been done, no treatment for the same is required.

The next payment is due on February 1, so we need to calculate interest for 1 month on the outstanding amount.

Interest is calculated on $150 for 1 month at the rate of 5%.

Interest = 150 * (5/100) * (1/12) = 0.625.

we have to post entry on Jan 21.1. so need to create provision for interest, as the sate of payment is 1st February.

Therefore following entry required to be passed :

Loan from Dell Finance A/c Dr. $150

Interest A/c Dr. $0.625

To Dell Finance $150.625

( Being Amount payable to dell Finance).