Notes Payable and Interest
On July 1, 2017, Kamer’s Trinkets borrowed $38,000 from the bank. Kamer signed a ten-month, 8% promissory note for the entire amount. Kamer’s uses a calendar year-end.
Required:
1. Identify and analyze the effect of the issuance of the promissory note.
| Activity | Financing |
| Accounts | Cash Increase, Notes Payable Increase |
| Statement(s) | Balance Sheet only |
Feedback
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 | |||||
| Cash |
|
Notes Payable |
|
|
No Entry |
|
No Entry |
|
|
|||||
Feedback
Correct
2. Identify and analyze the effect of any adjustments needed at year-end.
| Activity | Operating |
| Accounts | Interest Payable Increase, Interest Expense Increase |
| Statement(s) | Balance Sheet and Income Statement |
Feedback
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. Use months in calculation. 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 | |||||
| No Entry |
|
Interest Payable |
|
|
No Entry |
|
Interest Expense |
|
|
|||||
Feedback
3. Identify and analyze the effect of the payment of principal and interest.
| Activity | Financing |
| Accounts | Cash Decrease, Notes Payable Decrease, Interest Payable Decrease, Interest Expense Increase |
| Statement(s) | Balance Sheet and Income Statement |
Feedback
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. Use months in calculation. 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 | |||||
| Cash |
|
Notes Payable |
|
|
No Entry |
|
Interest Expense |
|
|
|||||
| No Entry |
|
Interest Payable |
|
|
No Entry |
|
No Entry |
|
||||||
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