Question

21. Sandra writes an "IOU" to Joe for services rendered equalling $10,000. She agrees
that payment will be made in full in 6 months at 10% interest. (.5 Mark Each )
A. What would Joe's journal entry be to record the transaction
B. How much interest will be payable at the end of 6 months?

Answer 1

1. Joe's journal entry to record the transaction of Sandra's IOU is as follows:

Journal Entry:

Debit Expenses $10,000

Credit Expenses Payable (Sandra) $10,000

• To record the services received on IOU.

2. The amount of the interest that will be payable at the end of the six months period is $500.

Transaction Analysis:

Expenses $10,000

Expenses Payable (Sandra) $10,000

Interest Expense $500

Interest Payable $500 ($10,000 x 10% x 6/12)

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