On December 1, Nautilus corporation borrowed $90,000 from a bank and signed a 10%, 90-day note payable in the amount of $90,000. The December 31 adjusting entry will be:
Mr. Ayaz invested cash Rs. 25000, vehicle Rs. 40000 and furniture Rs. 15000 in business.
debit interest expense $750 and credit note payable $750
To determine the December 31 adjusting entry for the note payable, we need to consider the interest expense that has accrued from the date of borrowing (December 1) to December 31.
Step 1: Calculate the accrued interest expense.
To do this, we need to know the interest rate (10%) and the principal amount borrowed ($90,000). We can use the following formula to calculate the interest expense:
Interest Expense = Principal Amount x Interest Rate x Time
Here, the time is given as 90 days. We need to convert it to a fraction of the year since the interest rate is given annually. There are 365 days in a year, so the fraction is:
Time = 90 days / 365 days
Now we can calculate the accrued interest expense:
Accrued Interest Expense = $90,000 x 10% x (90/365)
Step 2: Determine the debit and credit accounts for the adjusting entry.
The adjusting entry will include a debit to interest expense and a credit to interest payable.
Step 3: Record the adjusting entry.
On December 31, you would record the adjusting entry by debiting interest expense for the calculated amount of accrued interest expense and crediting interest payable for the same amount.
To summarize, the December 31 adjusting entry would be:
Debit: Interest Expense (for the calculated accrued interest expense).
Credit: Interest Payable (for the same amount of accrued interest expense).