On April 1, 2013, Ringo Company borrowed $20,000 from its bank by using a 9%, 12 month note, with the interest to be paid on the maturity date.
I need to find the interest paid on the maturity date, prepare a journal for it, and then make a reversing entry.
it's goes to cash payment journal
To find the interest paid on the maturity date, we need to calculate it using the formula: Interest = Principal x Rate x Time.
Given data:
Principal (P) = $20,000
Rate (R) = 9% or 0.09 (converted to decimal)
Time (T) = 12 months
Using the formula:
Interest = $20,000 x 0.09 x 1 (years) = $1,800.
Therefore, the interest paid on the maturity date is $1,800.
Now, let's prepare the journal entry for the borrowing of the loan and the payment of interest.
Journal Entry:
Date: April 1, 2013
Accounts Debit Credit
Cash $20,000
Loan Payable $20,000
(Note: The $20,000 cash received is debited as it increases cash, and the loan payable is credited to record the loan obtained.)
Date: April 1, 2014
Accounts Debit Credit
Interest Expense $1,800
Cash $1,800
(Note: The interest expense is debited to recognize the expense, and cash is credited to record the payment made for interest.)
Lastly, let's make the reversing entry, which is made on the first day of the next accounting period to reverse the previously recorded accrual:
Reversing Entry:
Date: January 1, 2015
Accounts Debit Credit
Interest Expense $1,800
Accrued Interest Payable $1,800
(Note: The accrued interest payable is debited to reverse the accrual, and the interest expense is credited to offset it.)
Note: Please consult with an accountant or financial advisor for specific accounting and tax advice.
To calculate the interest paid on the maturity date, you need to determine the interest amount based on the principal amount ($20,000), interest rate (9%), and the time period (12 months).
To find the interest amount, use the simple interest formula:
Interest = Principal * Rate * Time
In this case, the principal is $20,000, the rate is 9% (0.09 as a decimal), and the time is 12 months.
Interest = $20,000 * 0.09 * 1 (since the time is given in years)
Interest = $1,800
Therefore, the interest paid on the maturity date is $1,800.
To prepare the journal entry for this transaction, you need to record the borrowing of $20,000 and the accrual of $1,800 in interest payable.
The journal entry would look like this:
Date: April 1, 2013
Debit: Cash - $20,000
Credit: Notes Payable - $20,000
Credit: Interest Payable - $1,800
To make a reversing entry, you would reverse the interest payable on the next accounting period, which means you would cancel out the accrual of $1,800 in interest.
The reversing entry would look like this:
Date: April 1, 20XX (the first day of the next accounting period)
Debit: Interest Payable - $1,800
Credit: Interest Expense - $1,800
By making this reversing entry, you eliminate the accrued interest from the previous period, allowing you to start fresh with the new period's interest expenses.