Q15E
Question
Consider the following note payable transactions of Creative Video Productions. 2017 Aug. 1 Purchased equipment costing $16,000 by issuing a one-year, 9% note payable. Dec. 31 Accrued interest on the note payable. 2018 Aug. 1 Paid the note payable plus interest at maturity. Journalize the transactions for the company.
Step-by-Step Solution
VerifiedAnswer
Equipment cost is debited by $16,000 and notes payable credited by $16,000.
Interest expenses debited by $600 and interest payable are credited by $600.
Note payable, interest expenses payable and interest expenses are debited by $16,000, $600 and $840 respectively. The cash is credited by $17,440.
Date | Accounts and explanation | Debit | Credit |
Aug 1, 2017 | Equipment cost | $16,000 | |
Note payable | $16,000 | ||
(To record equipment in exchange of notes payable) | |||
Dec. 31 | Interest expenses | $600 | |
Interest payable | $600 | ||
(To record accrued interest) | |||
Aug 1, 2018 | Note payable | $16,000 | |
Interest expense payable | $600 | ||
Interest expenses | $840 | ||
Cash | $17,440 | ||
(To record note paid and interest at maturity) |
Calculation of interest expenses at December 31:
Calculation of interest expenses at August 31: