Adjusting Entries for Interest
At December 31, 2011, Portland Corporation had two notes payable outstanding (notes 1 and 2). At December 31, 2012, Portland also had two notes payable outstanding (notes 3 and 4). These notes are described below.
Date of note Principal Amount Interest Rate Number of Days December 31, 2011 Note 1 November 25, 2011 $28,000 8% 90 Note 2 December 16, 2011 17,800 9% 60 December 31, 2012 Note 3 December 11, 2012 16,400 9% 120 Note 4 December 07, 2012 19,000 10% 90
Required
a. Prepare the adjusting entries for interest at December 31, 2011.
b. Assume that the adjusting entries were made at December 31, 2011, and that no adjusting entries were made during 2012. Prepare the 2012 journal entries to record payment of the notes that were outstanding at December 31, 2011.
c. Prepare the adjusting entries for interest at December 31, 2012.
Round answers to nearest dollar. Use 360 days for interest calculations when applicable.
Adjusting Entries for Interest
At December 31, 2011, Portland Corporation had two notes payable outstanding (notes 1 and 2). At December 31, 2012, Portland also had two notes payable outstanding (notes 3 and 4). These notes are described below.
| Date of note | Principal Amount | Interest Rate | Number of Days | |
|---|---|---|---|---|
| December 31, 2011 | ||||
| Note 1 | November 25, 2011 | $28,000 | 8% | 90 |
| Note 2 | December 16, 2011 | 17,800 | 9% | 60 |
| December 31, 2012 | ||||
| Note 3 | December 11, 2012 | 16,400 | 9% | 120 |
| Note 4 | December 07, 2012 | 19,000 | 10% | 90 |
Required
a. Prepare the adjusting entries for interest at December 31, 2011.
b. Assume that the adjusting entries were made at December 31, 2011, and that no adjusting entries were made during 2012. Prepare the 2012 journal entries to record payment of the notes that were outstanding at December 31, 2011.
c. Prepare the adjusting entries for interest at December 31, 2012.
Round answers to nearest dollar. Use 360 days for interest calculations when applicable.
Related questions
PAYROLL ENTRIES
J&W Buffet Co. employees earned $350,000 in the week endedDecember 17, 2010. Of this, $26,775 was deducted from employeesâpay for FICA and $62,000 was deducted for income taxes.
Prepare the journal entry to record the employeesâ portion ofpayroll for December 17, 2010.
Prepare the journal entry to record the employerâs share of FICApayroll taxes for December 17, 2010.
HW 9 â 2
NOTES PAYABLE
Mumford Co. borrowed a $100,000 note payable on June 1, 2010,with 6% interest. The note is due on May 31, 2011.
Prepare the journal entry to record the issuance of the note andreceipt of cash on June 1, 2010.
Prepare the adjusting journal entry to record the interest owedat the end of the accounting period on December 31, 2010.
Prepare the journal entries to record the interest and principalpayments to the lender on May 31, 2011.
HW 9 â 3
UNEARNED REVENUE
On January 1, 2009, Charlie Rangel paid $2,000 for a twoâyearmembership to the Beam Gym.
Prepare the journal entry to record the receipt of cash onJanuary 1, 2009.
By December 31, 2009, one half of Rangelâs membership expired.Prepare the required adjusting journal entry on that date.
By December 31, 2010, the remainder of Rangelâs membershipexpired. Prepare the required adjusting journal entry on thatdate.
Post the entries above to the Unearned Revenue account:
| Unearned Revenue |
HW 9 â 4
ISSUING BONDS
Issuance of $800,000, 5-year, 8% payable annually (market rate12%) for cash of $684,627 on 1/1/07
Were these bonds issued at a discount or at a premium? Why?
Prepare the journal entry to record the issuance (sale) of thebonds:
Complete the following interest schedule (assuming straight-lineamortization):
Date | Cash Payment of Interest | Interest Expense | Amortization of Discount | Carrying Value (Net Liability) |
1/1/2007 | None | None | None | |
12/31/2007 | ||||
12/31/2008 | ||||
12/31/2009 | ||||
12/31/2010 | ||||
12/31/2011 |
Prepare the journal entry to record the first payment ofinterest on 12/31/2007:
HW 9 â 5
ISSUING BONDS
Issuance of $1,200,000, 5-year, 10% payable annually (marketrate 8%) for cash of $1,295,844 on 1/1/07
Were these bonds issued at a discount or at a premium? Why?
Prepare the journal entry to record the issuance (sale) of thebonds:
Complete the following interest schedule (assuming straight-lineamortization):
Date | Cash Payment of Interest | Interest Expense | Amortization of Premium | Carrying Value (Net Liability) |
1/1/2007 | None | None | None | |
12/31/2007 | ||||
12/31/2008 | ||||
12/31/2009 | ||||
12/31/2010 | ||||
12/31/2011 |
Prepare the journal entry to record the first payment ofinterest on 12/31/2007:
Exercise 4-1
During 2011 and 2012, Data Resources, Inc. engaged in financial transactions that involved short-term liabilities.
1. Using the financial transaction information provided below, determine the following.
a. All three note maturity dates.
b. The interest due on all three notes on the dates they mature, assuming a 360-day year.
c. The interest expense for the 2011 year-end adjusting entry.
d. For distinguished performance, determine the interest expense for 2012.
Note: The company uses a perpetual inventory system.
2011
| Mar 19 | Purchased $41,250 worth of merchandise from Chipcom, on credit. Terms: 1/10, n/30. | |
| April 29 | Replaced the Mar 19 account payable to Chipcom with a 120-day, $35,000 note at 7% annual interest, plus a cash payment of $6,250. | |
| Jun 16 | Borrowed $55,000 cash from Sunnyvale Bank. Signed a 90-day, 8% interest-bearing note, with a $55,000 face value. | |
| ? | Paid Chipcom the amount due on the note on the date of maturity. | |
| ? | Paid Sunnyvale Bank the amount due on the note on the date of maturity. | |
| Oct 30 | Borrowed $18,000 cash from UCB Bank. Signed a 90-day, 7% interest-bearing note, with a $18,000 face value. | |
| Dec 31 | Recorded an accrued interest adjustment on the UCB Bank note. | |
2012
| ? | Paid UCB Bank the amount due on the note on the date of maturity. |
