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Journal entry on Oct 2022, and Adjusting for Dec
Journal entry on Oct 2022, and Adjusting for Dec. 2022
1. Oct 2022, Issued a one-year, 10% note payable for P100,000 for office fixtures. The principal and interest are due October 1, 2023.
Expert Solution
|
Date |
Account Title and Explanation |
Debit |
Credit |
| October 2022 | Office Fixtures | 100,000 | |
|
Notes Payable |
100,000 | ||
| (To record the issuance of notes) | |||
| December 2022 | Interest Expense | 2,500 | |
|
Interest Payable |
2,500 | ||
| (To record the accrued interest for 3 months) |
Step-by-step explanation
Based on the problem above, it was short term notes payable is issued since it has only a one year term. Since it is a short term notes there is no need to compute for its present value because it does not significantly differ from the face amount. Therefore on the issuance date, the notes were recorded based on its face value amounting to P100,000.
It must also be observe that the note was issued on October 1, 2022 since it will matures one year after which is October 1, 2023 (given). At year end it is necessary for the issuer of the note to recognize and provide a journal entry for the interest expense was accrued from the date of notes were issued. The computation of interest expense is shown below.
Interest Expense = Face Amount x Annual Interest Rate x Time
Interest Expense = P100,000 x 10% x 3/12
Interest Expense = P10,000 x 3/12
Interest Expense = P2,500
Note: Interest runs from October 1 to December 31 or simply 3 months
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