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A-1 Photography

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Captain Forest (and ScottGem),

I posted on another thread, but got a notice that it hasn't had any replies for four months and has been closed. If you received my question twice, please forgive my double post.

I read your (CaptainForest) answering post to the person who asked about A-1 Photography, where the owner of our fictitious company takes out a $20,000 loan on 12 September with 10% interest for 60 days.

I agree that there is no journal entry until the end of the month, so that journal entry was easy for me. What I'm having trouble with is the end of month adjusting entry that asks us to accrue interest on the note payable for the month of September. Your computation of 20000 x .1 x 2/12 = $333.33 made sense to me, but all our answers (for comparison purposes) are in whole dollars, and our interest rate is for 60 days, not one year. We were also told to use a 360 day year. Please look over the following equation and tell me what I've done wrong.

If the loan is taken out on 12 September, interest begins accruing on 13 September and continues until 30 September, which is 18 days. So, $20,000 x .1 x 18/60 (or 3/10) = $600 interest accrued for the month of September.

If that is correct, I cannot figure out what else I have done wrong on the adjusting entries for this project, because my Trial Balance total matches the Key Figures, but my Adjusting Entries total does not. I am off by $500 too much.

Any help you can give would be MOST appreciated.

Thanks,
Arlene

I'm just posting so I can add this to my subscribed threads. Thanks!

Quote:

Originally Posted by CaptainForest

So you have a specific question?

Yes thanks,

The initial investments vehicle, how do we debit and credit this account?

Please correct me if I'm wrong, experts...

For the original investment, I debited the following:

Cash - $10,000
Office Equipment - $25,000
Photographic Equipment - $50,000
Vehicle - $12,500

I credited:

Philip Browning, Capital - $97,500

I found that answer on the screen shot of page D-2 in the A-1 Photography booklet.

Thanks,
Arlene

Quote:

Originally Posted by arlenem

Please correct me if I'm wrong, experts....

For the original investment, I debited the following:

Cash - $10,000
Office Equipment - $25,000
Photographic Equipment - $50,000
Vehicle - $12,500

I credited:

Philip Browning, Capital - $97,500

I found that answer on the screen shot of page D-2 in the A-1 Photography booklet.

Thanx,
Arlene

OK, I did not see anything in the book to do with the vehicle, question do we just keep it with the assets? Thanks.

Quote:

Originally Posted by drocksteady1965

OK, I did not see anything in the book to do with the vehicle, question do we just keep it with the assets? Thanks.

Sorry, I wasn't clear.

Did you find the screen shot on page D-2? In the Document 1 transactions, you see the five account numbers that are used. 11200 is the Vehicle account... that's what they are calling the asset account that represents the value of the vehicle.

I found it helpful to print out a chart of accounts for reference, and when I did my journaling, I mentioned the account name in the Transaction Description. From your example, my journal transaction description said "Initial Investment in A-1 Photography - Vehicle".

Hope that helps.
Arlene

Quote:

Originally Posted by drocksteady1965

Yes thanks,

The initial investments vehicle, how do we debit and credit this account?

What initial investments vehicle are you referring to?

Edit: I assume you are referring to the A-1 Photography. I do not know the details about it, but if you post a specific question, I can look at it for you.

Quote:

Originally Posted by drocksteady1965

OK, I did not see anything in the book to do with the vehicle, question do we just keep it with the assets? Thanks.

Arlene,

I just got to page A-21, I see Philip Browning capital 105,753

Quote:

Originally Posted by CaptainForest

What initial investments vehicle are you referring to?

Edit: I assume you are referring to the A-1 Photography. I do not know the details about it, but if you post a specific question, I can look at it for you.

OK I see it, page A-19 (H.) Depreciation on vehicle for Sep, $500.

Thanks

On Document 2,
The check for $6,000, should we debit the entire $6,000 to cash, then debit the $1,563 to Accounts Receivable then credit the $1,563 Service Revenue?

Thanks.

Quote:

Originally Posted by arlenem

Sorry, I wasn't clear.

Did you find the screen shot on page D-2? In the Document 1 transactions, you see the five account numbers that are used. 11200 is the Vehicle account...that's what they are calling the asset account that represents the value of the vehicle.

I found it helpful to print out a chart of accounts for reference, and when I did my journaling, I mentioned the account name in the Transaction Description. From your example, my journal transaction description said "Initial Investment in A-1 Photography - Vehicle".

Hope that helps.
Arlene

Thanks Arlene

Quote:

Originally Posted by arlenem

If the loan is taken out on 12 September, interest begins accruing on 13 September and continues until 30 September, which is 18 days. So, $20,000 x .1 x 18/60 (or 3/10) = $600 interest accrued for the month of September.

Arlene, the last document you are presented with shows you what adjusting entries need to be completed. In this document it has:

Quote:

Accrue interest on note payable (refer to Document 12, use a 360-day year)

The loan was taken out on September 12th and since you are doing the accounting records for the month of September on the 30th this note is only 18 days old. Your adjusted equation for the interest should be:

20000 x .1 x 18/360

(Use 360 because the last document told the user to use a 360 day year)

This should give you the correct interest to put onto that loan for the end of the month of September. (Please note that on all notes the interest is year interest - despite how long the note is given)

You are off by $500 because the equation should read 20,000 x 10% x 18/360=100

Duke26, this thread is like two years old. I doubt seriously you went that far back in the list to drag something up that old, so I'm suspecting you saw the list that comes up at the bottom of the page that says "Similar Questions." Well, that thing will drag up a lot of old questions, not recent ones. I didn't notice that at first either. So might want to pay attention to the dates on that thing.