Question

On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the adjusting entry for the accrued interest at December 31 on the note? (Use 360 days a year.)

Answer 1

Answer:

interest lost                118,84

interest to accrue                    118,84

Explanation:

First we must determine the value of the interest-free debt to know how much has accrued as of December 31.

So we must raise the equation with the information given.

9.000= X + X . (0,08 . 120 / 360 )

where the X is the value of the interest-free debt

9.000= X + X0,02667

9.000/1,02667 = X

8766,21 = X

determined the value of the interest-free debt, we can get the value of the interest 9.000-8.766.21 = 233,79 interest

Interest can also be obtained by multiplying the value of the debt by the interest rate and the term 8.766,21 . 0,08 . (120/360) = 233,76 (  

rounding difference)

then determined the interests for 120 days we must determine the accrued interest  from November 1 to December 31 (61 days)

i61= 233,79 . 61 . / 120

i61 = 118,84

then we make the entry for accrued interest as in the answer