The Yankel Corporations controller prepares adjusting entrie

The Yankel Corporation\'s controller prepares adjusting entries only at the end of the fiscal year. The following adjusting entries were prepared on December 31, 2018: Interest expense 2,100 70,000 4,200 Interest payable 2,100 70,000 4,200 Insurance expense Prepaid insurance Interest receivable Interest revenue Additional information 1. The company borrowed $35,000 on June 30, 2018. Principal and interest are due on June 30, 2019. This note is the company\'s only interest-bearing debt. 2. Insurance for the year on the companys office buildings is $105,000. The insurance is paid in advance. 3.On August 31, 2018, Yankel lent money to a customer. The customer signed a note with principal and interest at 9% due in one year. Required: 1. What is the interest rate on the company\'s note payable? 2. The 2018 insurance payment was made at the beginning of which month? 3. How much did Yankel lend its customer on August 31? 1. Interest rate 2. Month of insurance payment 3. Principal

Solution

1) The interest on the loan is payable for 6 months during the year. Hence, Interest = Loan amount * r/2, where \'r\' is the rate of interest. Substituting available values, we have 2100 = 35000*r/2 r = 2100*2/35000 = 12% 2) Assuming the insurance is paid for a year, the number of months expired = (70000/105000)*12 = 8 months. So the insurance was paid in the beginning of May. 3) Interest is accrued for 4 months during the year. Hence, 4200 = P*0.09*4/12, where P = Principal P = 4200*12/(0.09*4) = $140,000