Fact Pattern #$2$

Company A borrows $$24,000$ from Bank XYZ on August $1,$ Year $1$ pursuant to a promissory note. The entire principal amount of the debt is due on July $31,$ Year $3.$ The interest rate on the loan is $10\%.$ Company A must pay $($somewhat unrealistically$)$ interest for a given year annually on July $31$ of the following year.

Both Company A and Bank XYZ report on a financial year ending December $31.$ Both Company A and Bank XYZ record adjusting journal entries only at the end of their respective financial years.

For purposes of this fact pattern, assume that Company A does not pay any principal amount of the debt until the final maturity date of July $31,$ Year $3.$ Also assume the interest for a twelve$-$month period is proportionately$/$ratably allocated to each month of that twelve$-$month period.

Question $11$ Needs Answer

Question $11(5$ points$)$

Retake question

On August $1,$ Year $1,$ Bank XYZ will make an operating journal entry reflecting the following:

Question $11$ options:

Debit to Cash for $$24,000.$

Credit to Note Payable $--$ Company A for $$24,000.$

Based on the facts, Bank XYZ will not need to make an operating journal entry on August $1,$ Year $1.$

Debit to Note Receivable $--$ Company A for $$24,000.$

Question $13$ Needs Answer

Question $13(5$ points$)$

Retake question

On December $31,$ Year $1,$ Company A will make an adjusting journal entry reflecting the following:

Question $13$ options:

Credit Interest Expense for $$1,000.$

Based on the facts, Company A will not need to make an adjusting journal entry on December $31,$ Year $1,$ to account for interest expenses accrued on its liability to Bank XYZ during Year $1.$

Debit Interest Expense for $$2,400.$

Credit Interest Payable for $$1000,$

Question $14$ Needs Answer

Question $14(5$ points$)$

Retake question

On July $31,$ Year $2,$ Company A will make an operating journal entry reflecting the following:

Question $14$ options:

Based on the facts, Company A will not need to make an operating journal entry on July $31,$ Year $2.$

Credit Interest Expense for $$1,400.$

Credit Interest Payable for $$1,000.$

Credit Cash for $$2,400.$

Question $15$ Needs Answer

Question $15(5$ points$)$

Retake question

On July $31,$ Year $2,$ Bank XYZ will make an operating journal entry reflecting the following:

Question $15$ options:

Credit Cash for $$2,400.$

Based on the facts, Bank A will not need to make an operating journal entry on July $31,$ Year $2.$

Debit Interest Revenue for $$1,400.$

Credit Interest Receivable for $$1,000.$

Question $18$ Needs Answer

Question $18(5$ points$)$

Retake question

On December $31,$ Year $2,$ Bank XYZ will make an adjusting journal entry reflecting the following:

Question $18$ options:

Debit Interest Receivable for $$2,400.$

Debit Interest Revenue for $$1,000.$

Debit Interest Receivable for $$1,000.$

Based on the facts, Bank XYZ will not need to make an adjusting journal entry on December $31,$ Year $2,$ to account for interest revenue earned relating to Company A$\text{'}$s liability to Bank XYZ during Year $2.$

Question $19$ Needs Answer

Question $19(5$ points$)$

Retake question

On December $31,$ Year $2,$ Company A will make a closing journal relating to its total interest expenses for Year $2$ reflecting the following:

Question $19$ options:

Based on the facts, Company A will not need to make any closing journal entry relating to Interest Expense for Year $2.$

Debit Income Summary for $$1,000$

Debit Income Summary for $$2,400.$

Credit Interest Payable for $$1,400.$