Aug 1 Great Adventures obtains a 39000 lowinterest loan for

Aug.

1

Great Adventures obtains a $39,000 low-interest loan for the company from the city council, which has recently passed an initiative encouraging business development related to outdoor activities. The loan is due in three years, and 6% annual interest is due each year on July 31.

Interest expense on the $39,000 loan obtained from the city council on August 1 should be recorded.

Prepare the adjusting entry for interest.

General Jorunal

Dec 31, 2018 Interest Expense ______

                                Interest payable _______

Solution

DATE

PARTICULARS

LEDGER FOLIO

DEBIT

CREDIT

Dec 31, 18

INTEREST EXPENSE

$975

TO INTEREST PAYABLE

$975

(BEING INTEREST PAYABLE)

INTEREST EXPENSE FOR 12 MONTHS = $39000*6% = $2340

INTEREST EXPENSE FOR 5 MONTHS (AUGUST - DECEMBER) = $2340*5/12 = $975