Question 4 (8 points) Alpha Company prepares quarterly adjusting entries. On Aug

Question

Question 4 (8 points) Alpha Company prepares quarterly adjusting entries. On August 31, 2017, Alpha Company purchased equipment with a sticker price of $8,515 and signed a note due in 9 months for $10,000 that included interest in the value of the note. Use this information to prepare the general journal entry for the August 31 equipment purchase. Prepare any additional general journal adjusting entries for Fiscal Years 2017 & 2018. Additionally, prepare the general journal entry to record the payment of the note when due in 2018.

Explanation / Answer

For Fiscal 2017 Date Account Title Debit Credit Aug.31, 2017 Equipment 8515 Prepaid Interest 1485 Note Payable 10000 (Equipment purchased on note payable) Sep.30, 2017 Interest Expense 165 Prepaid Interest 165 (Interest Expense for one month recorded) Dec.31,2017 Interest Expense 495 Prepaid Interest 495 (Interest Expense for three months recorded) For Fiscal 2018 Date Account Title Debit Credit Mar.31, 2018 Interest Expense 495 Prepaid Interest 495 (Interest Expense for three months recorded) May.31,2018 Interest Expense 330 Prepaid Interest 330 (Interest Expense for two months recorded) May.31,2018 Note Payable 10000 Cash 10000 (Retirement of Note payable) As the note is issued for $10,000 and the equipment cost is $8,515, the interest amount is recorded as prepaid , and interest is charged every quarter until the retirement of the note payable.

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