Question

Tate Company purchased equipment on November 1, 2020 and gave a 3-month, 9% note with a face value of $80,000. The December 31, 2020 adjusting entry is

Answer 1

Answer -

Tata Company

General Journal

For the year ended December 31,2020

Date	Particulars	Debit	Credit
2020
Dec.31	Interest Expense	1,200
	InterestPayable		1,200
	(Being interest paid for 2 months)

Working Note -

Principal = $ 80,000

Interest Rate = 9%

Time = 2 / 12 { 2 months ( from November to December ) }

Interest = Principle * Time * Rate / 100 * 12

= 80,000 * 2 * 9 / 100 * 12

= 1,440,000 / 1200

= $ 1,200

Here, time is in months that’s why time is 2/12.