[karinamd]

I am giving the following information:

Nov. 10 Purchased store equipment for $200,000 paying $60,000, and issuing a series of seven 9% notes for $20,000 each, coming due at 30-day intervals.

Dec. 10 Pay the amount due on first note in the series issued Nov. 10.

Now my question is the following how do I:

Journalize the adjusting entry for the accrued expenses at the end of the current year for the interest on the remaining six notes.

I know the answer is 1530, but do not know how to calculate that. Please explain. Thanks!

[karinamd]

I am giving the following information:

Nov. 10 Purchased store equipment for $200,000 paying $60,000, and issuing a series of seven 9% notes for $20,000 each, coming due at 30-day intervals.

Dec. 10 Pay the amount due on first note in the series issued Nov. 10.

Now my question is the following how do I:

Journalize the adjusting entry for the accrued expenses at the end of the current year for the interest on the remaining six notes.

I know the answer is 1530, but do not know how to calculate that. I calculated the Dec. 10th payment correctly, but I seem to be missing something with regards to the other six payments. Please explain. Thanks!

[morgaine300]

This isn't out of the Warren Reeves Duchac by chance, is it? I know it has a problem in there like that, which has always been difficult to understand because of the way they present it. Plus there isn't sufficient detail to understand exactly what is happening. It's not even like the book teaches it with an assumption and then just expects you'll do it that way.

It's 120,000 x .09 x 51/360

i.e. After paying the 20,000 payment on 12/10, that leaves 120,000 due. At 9% a year, and for 51 days from 11/10 to 12/31. So you're accruing the interest only on the 120,000 portion of the loan.

Meaning the interest on the first $20,000 that was also borrowed for the first 30 days had interest added on. It wouldn't be included in the $20,000 because that wouldn't work out with the principal and make those 7 payments work. (It has to be a payment-plus-interest type thing.) So an extra $150 of interest was paid with that $20,000, which takes care of the interest on that.

It also requires the ASSUMPTION that interest was paid only on the $20,000 payment and not on the entire principle from 11/10 to 12/10. That's a darn silly way to do a loan, cause there's going to be more interest with each payment instead of less, and the payments will get bigger. And it's darn silly to expect that assumption from you. How would you know that??

Don't worry about it too much. It's a stupid problem and I've never seen a student yet be able to figure it out, so don't feel bad.

[morgaine300]

I moved your other post over to here. Please do not double post things. It just confuses things and takes up our time -- especially when someone could spend time solving this for you, just to discover someone else already did it.