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25 November, 11:32

On November 1, 2012, The Bagel Factory signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2013. The Bagel Factory records the appropriate adjusting entry for the note on December 31, 2012. In recording the payment of the note plus accrued interest at maturity on May 1, 2013, The Bagel Factory would

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  1. 25 November, 11:54
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    interest expense 2,000

    interest payable 1,000

    note payable 100,000

    cash 103,000

    Explanation:

    We will check the accrued interest at year-end:

    notice the rate is annual so we convert for the mont we need in each case:

    Nov 1st to Dec 31th = 2 months

    0.06 x 2/12 = 0.01

    100,000 x 1% = 1,000 interest payable accrued at december 31th

    Then we calculate from Jan 1st to May 1st = 4 months

    0.06 x 4/12 = 0.02

    100,000 x 2% = 2,000 interest expense for the year 2013

    entry would be the payment of this two interest, plus the principal

    100,000 + 1,000 + 2,000 = 103,000

    interest expense 2,000

    interest payable 1,000

    note payable 100,000

    cash 103,000
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