On June 1, Merando Company borrows $90,000 from First Bank on a 6month, $90,000, 8% note….
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Question “On June 1, Merando Company borrows $90,000 from First Bank on a 6month, $90,000, 8% note….”




Answer
Journal Entries: Journal Entries are the first step of the accounting cycle. Following the debit credit rules, transactions with a financial effect are recorded in books of account after understanding and analysing them.
Debit Credit Rule – The Debit Credit Rule is explained below.
1. For real accounts such as building, plant and machinery, you can debit what comes in and credit what goes out.
2. Credit the giver and debit the receiver – for personal accounts such as capital accounts, drawings accounts of owners, partners, etc.
3. All expenses and losses are deducted and credits all incomes and gains. This is applicable to nominal accounts such as rent paid or interest received.
Adjusting entries: These entries are those that are passed at year’s end but before finalization of books of accounts. These entries are passed to adjust transactions that involve accruals or deferrals.
Notes Payable These are promissory notes issued by the company to raise the debt. It is part of the current liability, which is shown in the balance sheet under the heading current liabilities.
Interest payable: These are expenses related to interest that have been incurred but not paid. These expenses are listed on the liability side in the balance sheet.
The interest cost refers to the amount paid by the borrower to the lender. The borrower pays interest over a period that is longer than the principal repayment. This person uses another person’s money to run its business and pays interest on that amount.
Cash in hand: This is the money or currency that is available to a business entity at any given time and which can be used to carry out daily business activities and expenses.
Liability: A business’s obligation is Liability. Liabilities are amounts borrowed from an outsider by a business. Owners and creditors are the two main groups that have rights to assets of a company in lieu credit they provided to it.
1. A
To record the 8% bank notes that were borrowed on June 1, please make a journal entry:
1. b
To record interest expenses for June, make the following journal entry:
Working Note:
Use the following equation to calculate the interest charges for one month.
\begin{array}{c}\\{\rm{Interest expenses}} = {\rm{Notes Payable}} \times {\rm{Interest rate}} \times \frac{1}{{12}}\\\\ = \$ 90,000 \times 8\% \times \frac{1}{{12}}\\\\ = \$ 600\\\end{array}Therefore, interest expenses are $600
1. c
To record interest payments and bank notes, you will need to make a journal entry.
Working Note:
Use the following equation to calculate the interest expense for six months.
\begin{array}{c}\\{\rm{Interest Expenses}} = {\rm{Notes Payable}} \times {\rm{Interest Charges}} \times \frac{6}{{12}}\\\\ = \$ 90,000 \times \frac{8}{{100}} \times \frac{6}{{12}}\\\\ = \$ 3,600\\\end{array}Therefore, interest expenses total $3,600
2.
Use the following equation to calculate the total interest expense/finance cost for six months.
\begin{array}{c}\\{\rm{Interest Expenses}} = {\rm{Notes Payable}} \times {\rm{Interest Charges}} \times {\rm{Period due}}\\\\ = \$ 90,000 \times \frac{8}{{100}} \times \frac{6}{{12}}\\\\ = \$ 3,600\\\end{array}The total cost of financing is therefore $3,600
Ans: Part1a
Part 1b
Part 1c
Part 2
Total financing cost: $3,600
Conclusion
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