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Chapter 13: Question 2BE (page 692)

BE13-2 (L01) Upland Company borrowed \(40,000 on November 1, 2017, by signing a \)40,000, 9%, 3-month note. Prepare Upland鈥檚 November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry.

Short Answer

Expert verified

The total amount of interest expense paid by the company over the 3 months notes is $900.

Step by step solution

01

Meaning of Loan

A person or business entity borrows an amount from a lending institution for a pre-determined interest payment. The purpose of the loan is to meet the needs of money. It is shown as a liability on the balance sheet.

02

Journal Entries

Date

Accounts and Explanation

Debit $

Credit $

November 1, 2017

Cash

$40,000

Notes Payable

$40,000

December 31, 2017

Interest Expenses

$600

Interest Payable($40,000 x 9% x 2/12)

$600

February 1, 2018

Notes Payable

$40,000

Interest Payables

$600

Interest expenses($40,000 x 9% x 1/12)

$300

Cash

$40,900

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