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    trca4596's Avatar
    trca4596 Posts: 9, Reputation: 1
    New Member
    		  
    #1

    Feb 18, 2012, 12:36 AM
    Long term Note Payable and Interest
    Please help! I have been stuck on this part for over a week.

    Unadjusted Trial Balance End Sept 30, 19xx
    Cash D 18,000
    Accounts payable C 20,250
    Interest Payable C 4,800
    Long term Notes payable 25,000
    Fees Earned 140,000
    Interest expense 1,500
    ...

    Additional facts for end of year.
    A. The long term note payable bears interest at 1% per month, which the company is required to pay by the 10th of the following month.The balance of the Interest expense account equals the amount paid during the year.

    B. The interest for Sept has not been recorded yet, nor paid. In addition, the company is required to make a $5000 payment on the note on Nov 30, 19xx.

    I'm lost :( since both deal with the interest. Please help
    pready's Avatar
    pready Posts: 3,197, Reputation: 207
    Ultra Member
    		  
    #2

    Feb 18, 2012, 07:42 AM
    A. For this you need to calculate the amount of interest Expense for the period. So $25,000 * 1% = Interest Expense

    B. For this your adjusting entry for the insterest payment due by Oct 10 will be:
    Debit Interest Expense for the amount calculated above in A.
    Credit Interest Payable for the same amount.

    The payment for the principal is not an adjusting entry. For this you just need to move the amount to Long-term Notes Payable - Current Portion Due or other appropriate current liability.
    trca4596's Avatar
    trca4596 Posts: 9, Reputation: 1
    New Member
    		  
    #3

    Feb 18, 2012, 10:14 AM
    Thank you!

    I almost thought that I had to put in two entries for interest expense. I tend to over think problems.
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