Question

midshipmen Company borrows $17,500 from Falcon Company on July 1, 2021. Midshipmen repays the amount borrowed and pays interest of 12% (1%/month) on June 30, 2022. Required: 1&2. Record the necessary entries in the Journal Entry Worksheet below.3. Calculate the 2021 year-end adjusted balances of Interest Payable and Interest Expense (assuming the balance of Interest Payable at the beginning of the year is $0).

Answer 1

Answer:

1.

July 1, 2021

Dr Cash $17,500

Cr Note Payable $17,500

(Borrowed from Falcon company for a 12% note)

2.Dr Interest expense $6,300

Cr Interest payable$6,300

3.The balance of interest expense and interest payable on Dec 31 2021 is $6,300

Explanation:

1.Journal entries

July 1, 2021

Dr Cash $17,500

Cr Note Payable $17,500

(Borrowed from Falcon company for a 12% note)

2.Dr Interest expense $6,300

Cr Interest payable$6,300

3.The balance of interest expense and interest payable on Dec 31 2021 is $6,300

On December 31 2021 Interest expenses has accrued 6% July to December 30

Interest for month is equal $17,500×1%=$175

For 6 months =$1,050×6=$6,300

Thus $6,300 of interest expense should be recognized.

Answer 2

Journal entry refers to the primary record of a transaction or event. The journal entries for the question are given in the attachment.

The 2021 year-end adjusted balances of Interest Payable and Interest Expense is $1050 and $1050.

What is Journal entry?

Journal entry refers to the act of keeping the record of a transaction or an event in chronological order having monetary value.

The balance of interest payable and interest expense on December 21, 2021 can be calculated as follows:

Amount of loan is $17500.

Rate of interest is 12% p.a.

The interest up to Dec 31, 2021 will be:

$\rm \ 17,500 x 12\%x \dfrac{6}{12}\\\\\ 1050$

Therefore the interest expense will be $1050.

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