Q14Q - Intermediate Accounting (Kieso)

Question

Midwest Enterprises made the following entry on December 31, 2017.

Interest Expense                   10,000

Interest Payable                    10,000

(To record interest expense due on loan from Anaheim                                         

National Bank)

What entry would Anaheim National Bank make regarding its outstanding loan to Midwest Enterprises? Explain why this must be the case.

Step-by-Step Solution

Answer

The interest revenue is debited by $10,000 and the interest revenue is credited by $10,000 to record the interest receivable paid.

As the National Bank ought to receive interest on the loan, therefore it is a current asset as well as income. 

Step 1: Meaning of interest expense

Interest expense is a non-operating expense presented on the income statement. It is considered as the cost undertaken by the business enterprise for the funds borrowed.

Step 2: Entry made by Anaheim National Bank in association with outstanding loan and explanation for it

Date	Account title and explanation	Debit	Credit
December 31	Interest receivable	10,000
	To Interest revenue		10,000
	(To record accrued interest revenue on loan)

 

Accrued expenses are obtained from the similar sources as accrued revenues. Actually, an accrued expense on the accounts of acompany is like an accrued revenue to the other.