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on august 1, luang corporation signed a $30,000, 14%, 2-year note to help finance renovations being made to the corporation headquarters. assuming interest is accrued only when the year ends on december 31, the appropriate journal entry for the first year would be:

Answer :

PARRAINGO

The journal entry for Luang Corporation getting a $30,000 note to help with finance renovations is:

Date                    Account Title                                        Debit                 Credit

Dec. 31                Interest Expense                                $1,750  

                           Interest Payable                                                             $1,750

The interest will be based on a period of 5 months because it was only acquired in August so will accrue from August to December.

The interest will therefore be:

= Amount x 5 months interest

= 30,000 x 14% / 12 months x 5 months

= $1,750

Expenses are debited so the interest expense will be debited. As interest is a liability, it will be credited to the interest payable account.

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