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Consider the following note payable transactions of Cabal Video Productions.

Requirements
1. Journalize the transactions for the company.
2. Considering the given transactions​ only, what are Cabal Video​ Productions' total liabilities on December​ 31, 2019​?

May ​1, 2018​: Purchased equipment costing $ 96,000 by issuing an eight​-year, 6​% note payable. The note requires annual principal payments of $ 12 comma 000 plus interest each May 1.
Dec 31, 2018: Accrued interest on the note payable.

Respuesta :

Answer:

1. The Journal entries are as follows:

(a) On May 1, 2018

Equipment A/c Dr. $96,000

       To Notes payable         $96,000

(To record the Issuance of Note Payable)

(b) On December 31, 2018

Interest expense A/c Dr. $3,840

      To interest payable               $3,840

(To record the accrue interest at the end of the year)

Time period: May 1, 2018 to December 31, 2018 = 8 months

Interest expense:

= $96,000 × 0.06 × (8/12)

= $3,840

(c) On May 1, 2019

Notes payable A/c Dr. $12,000

Interest payable A/c Dr. $3,840

Interest expense A/c Dr. $1,920

          To cash                               $17,760

(To record the first installment on notes payable)

Time period: January 1, 2019 to April 30, 2019 = 4 months

Interest expense:

= $96,000 × 0.06 × (4/12)

= $1,920

(d) On December 31, 2019

Interest expense A/c Dr. $3,360

      To interest payable               $3,360

(To record the accrue interest at the end of the year)

Time period: May 1, 2019 to December 31, 2019 = 8 months

Interest expense:

= ($96,000 - $12,000) × 0.06 × (8/12)

= $84,000 × 0.06 × (8/12)

= $3,360

2. Liability at December 31, 2019:

= $3,360

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