er 1. Spencer Department Store borrowed $19,250 from First Bank and Trust. Spenc
ID: 2390737 • Letter: E
Question
er 1. Spencer Department Store borrowed $19,250 from First Bank and Trust. Spencer signed a day note with a face amount of $20,000. The interest rate stated on the face of the note is 15 percent ear. hovide the jounal entry recorded by Spencer on December l. vide the adjusting entry recorded by Spencer on December 31 before financial statements are pre- d. Show how the note payable would be disclosed on the December 31 balance sheet. ute the actual annual interest rate on the note. (Hint: Note that Spencer had the use of $19,250 Comp aly over the period of the loan.) Why is the actual interest rate different from the rate stated on the face of the note?Explanation / Answer
Answer:-
On 1st December
Spencer Department store received $19,250 from First Bank And Trust
Interest Expense come out to be = $20,000 X 15% = $ 3,000 For the Year
As the Bill was for 90 days Interest Expediture for 90 days will be
= $3,000 X 90 /360 days - $ 750 Assumed ( 360 days in a Year) for sack of Calculations
which was deducted and paid by bank to SPencer = $20,000-750 = $19,250
Journal Entry on 01 December
Cash/Bank A/c Debit $ 19,250
Discount/ Interest Amortisation A/c Debit $750
To First Bank And Trust Credit ( Note Paybale) $20,000
b) Adjusting Entry on Year End
Interest Expenses A/c Debit $ (750*30/90) = $250
Discount/ Interest Amortisation A/c Credit $250
Liabilities
Current Liabilties
Note Payble - $ 20,000
Assets
Other Assets
Discount/ Interest Amortisation A/c - $ 500
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