Question

What is the journal entry to the following situation?

1. On September 15, 2016, the Board authorized Rosen to seek out $200,000 in financing for the warehouse expansion and renovation project. On October 13, 2016, the Board noted in the minutes that the loan had been obtained from Fleet Bank at a rate of 6.5% for five years. An analysis of the bank confirmation indicated that $100,000 was outstanding at year end.

Answer 1

Ans:

Loan taken : $200,000

Date of loan taken : 13 oct 2016

Interest rate : 6.5%

Balance at 31 Dec 2016 : $100,000

So repayamnet of principal : $200,000 - $100,000 = $100,000

Interest expense booked and paid till 31st december 2016: Loan amount*interest rate * (No. of days outstanding /365):

= $200,000*6.5%*(80/365) = $2,849 (Rounded off to nearest Dollar)

Journal Entry will be as follows:

Date	General Journal	Debit	Credit
13 Oct 2016	Cash	200,000
	6.5% Bank Loan		200,000
31 Dec 2016	Interest Expense	2,849
	6.5% Bank Loan	100,000
	Cash		102,849

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