On July 1, 2016, Morningside Co. borrowed $33,000 from the bank. Morningside sig
ID: 1174636 • Letter: O
Question
On July 1, 2016, Morningside Co. borrowed $33,000 from the bank. Morningside signed a ten-month, 6% promissory note for the entire amount. Morningside uses a calendar year-end.
1. Prepare the journal entry on July 1, 2016 to record the issuance of the promissory note. How does this entry affect the accounting equation?
Indicate the effect on financial statement items by selecting "–" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
2. Prepare any adjusting entries needed at year-end. How does this entry affect the accounting equation? Assume a 360-day year for interest calculations.
Indicate the effect on financial statement items by selecting "–" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
3. Prepare the journal entry on May 1, 2017 to record the payment of principal and interest. How does this entry affect the accounting equation? Assume a 360-day year for interest calculations.
Indicate the effect on financial statement items by selecting "–" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
Explanation / Answer
date
explanation
debit
credit
Assets
=
Liabilities
+
Shareholders equity
Income
-
Expense
=
net income
July 1 2016
cash
33000
33000
=
33000
+
0
0
-
0
=
0
notes payable
33000
31-Dec
interest expense
1686.667
0
=
0
+
-1686.67
0
-
-1686.67
=
-1686.67
interest payable
1686.667
0
=
1686.667
+
0
0
-
0
=
0
May 1 2017
notes payable
33000
0
=
-33000
+
0
0
-
0
=
0
interest expense
1100
0
=
0
+
-1100
0
-
-1100
=
-1100
interest payable
1686.667
0
=
-1686.67
+
0
0
-
0
=
0
cash
35786.67
-35786.7
=
0
+
0
0
-
0
=
0
date
explanation
debit
credit
Assets
=
Liabilities
+
Shareholders equity
Income
-
Expense
=
net income
July 1 2016
cash
33000
33000
=
33000
+
0
0
-
0
=
0
notes payable
33000
31-Dec
interest expense
1686.667
0
=
0
+
-1686.67
0
-
-1686.67
=
-1686.67
interest payable
1686.667
0
=
1686.667
+
0
0
-
0
=
0
May 1 2017
notes payable
33000
0
=
-33000
+
0
0
-
0
=
0
interest expense
1100
0
=
0
+
-1100
0
-
-1100
=
-1100
interest payable
1686.667
0
=
-1686.67
+
0
0
-
0
=
0
cash
35786.67
-35786.7
=
0
+
0
0
-
0
=
0
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