Accounting HW Question (not asking for answer just guidance)?

Question

the problem states:
The $15,000 long-term note is an 8%, five-year, interest-bearing note with interest payable annually on December 31. The note was signed with First National Bank on December 31, 2011.

I am then supposed to make adjustments and figure out the ending balance of "interest expense" account and "interest payable" account (both have a beginning balance of zero)

If someone can push me in the right direction or give me a formula of how to figure this out it would be really helpful

TIA

Anonymous · Accepted Answer

I have to do the same hw, do you have your book with you? You better read it ;___; If you can't remember these formulas what's going to happen to you on the final??

to find out what the first years interest is we use the formula

formula is: interest= principal x rate x time
$15,000 x 8/100 (8% interest) x 1,825/365 (1,825 is 5 years in days)= $6,000
since that is how much the interest will be in all six years you divide that by 5= $1,200 per year
So I'm guessing the adjustment is recording first years interest.

Since the balance for interest payable/expense account has a zero balance, this years payable and expense will be $1,200 (since there's nothing else in each account to subtract of add too).

the adjusting entry would look like this:
Interest Expense-----1,200
---Interest Payable-----------1,200
-------To record annual 
-------interest

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Accounting HW Question (not asking for answer just guidance)?

1 Answer