Question
Accrual of Interest on a Loan On July 1, Paxson Corporation takes out a 10.2%, two-month, $74,000 loan at Friendly National Bank. Principal and interest
Accrual of Interest on a Loan
On July 1, Paxson Corporation takes out a 10.2%, two-month, $74,000 loan at Friendly National Bank. Principal and interest are to be repaid on August 31. Assume a 360-day year.
Required:
1. Identify and analyze the transactions or adjustments for July 1 to record the borrowing, for July 31 to record the accrual of interest, and for August 31 to record repayment of the principal and interest.
The effect of the transaction on July 1 can be identified and analyzed as follows:
| Activity | |
| Accounts | |
| Statement(s) |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e., a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| fill in the blank f40cef065028041_2 | fill in the blank f40cef065028041_4 | fill in the blank f40cef065028041_5 | fill in the blank f40cef065028041_7 | fill in the blank f40cef065028041_9 | fill in the blank f40cef065028041_10 | |||||||||
The effect of the adjustment on July 31 can be identified and analyzed as follows:
| Activity | |
| Accounts | |
| Statement(s) |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e., a decrease, be sure to enter the answer with a minus sign. Do not round intermediate calculations. If required, round your final answer to the nearest dollar.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| fill in the blank 1232a3fbc028049_2 | fill in the blank 1232a3fbc028049_4 | fill in the blank 1232a3fbc028049_5 | fill in the blank 1232a3fbc028049_7 | fill in the blank 1232a3fbc028049_9 | fill in the blank 1232a3fbc028049_10 | |||||||||
The effect of the transaction on August 31 can be identified and analyzed as follows:
| Activity | |
| Accounts | |
| Statement(s) |
How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e., a decrease, be sure to enter the answer with a minus sign.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| fill in the blank 18efed0a0075fda_2 | fill in the blank 18efed0a0075fda_4 | fill in the blank 18efed0a0075fda_5 | fill in the blank 18efed0a0075fda_7 | fill in the blank 18efed0a0075fda_9 | fill in the blank 18efed0a0075fda_10 | |||||||||
| fill in the blank 18efed0a0075fda_12 | fill in the blank 18efed0a0075fda_14 | fill in the blank 18efed0a0075fda_15 | fill in the blank 18efed0a0075fda_17 | fill in the blank 18efed0a0075fda_19 | fill in the blank 18efed0a0075fda_20 | |||||||||
2. Evaluate the following statement: It would be much easier not to bother with an adjusting entry on July 31 and simply record interest expense on August 31 when the loan is repaid. Which accounting principle is violated here?
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Business Analysis With Microsoft Excel
Authors: Conrad Carlberg
3rd Edition
0789736640, 9780789736642
