Question

Question 6 – The Friendly City Company took out a 5 year, 10% loan of $120,000 on September 1, 2019. Their yearend is December 31. NOTE: You may use your financial calculator of the present value annuity factor is 3.7908. REQUIRED: Journalize the accrual on December 31 and the 1st payment on Aug 31, 2020

Journal Entry Require

Answer 1

Solution:

Annual payment on loan = $120,000 / Cumulative PV factor at 10% for 5 periods

= $120,000 / 3.7908 = $31,656

Friendly City Co
Journal Entries
Date	Particulars	Debit	Credit
31-Dec	Interest expense Dr ($120,000*10%*4/12)	$4,000.00
	To Interest Payable		$4,000.00
	(To record interest accrual)
31-Aug	Notes Payable Dr	$19,656.00
	Interest expense Dr ($120,000*10%*8/12)	$8,000.00
	Interest Payable Dr	$4,000.00
	To Cash		$31,656.00
	(To record first installment payment)