Question

The Notes Payable balance of $829,350 results from two loans the company has taken. On November 1, 2017, Powell took a 4-year, 5%, $654,350 loan. The interest on this loan is payable annually, on each October 31. Also, On June 1, 2018, Powell took a 1-year, 8%, $175,000 construction loan (see A7 below). The interest on this loan is payable on the maturity date, May 31, 2019. Note– Powell already recorded the interest paid on these loans in 2018. For this adjustment, consider any accrued interest on the loans at the December 31, 2018 reporting date.

A7... On July 1, 2018, Powell purchased a 3-year insurance policy for $234,972 and paid the full cost of the policy in advance. The policy provides coverage through June 30, 2021.

Prepare the journal entries to record the omitted adjustments

Answer 1

Interest Accural

1st Interest (654350*5%*2/12)	5452.92
2nd Interest (175000*8%*7/12)	8166.67
Total Accured interest	13619.59

Date	Account and explanation	Debit	Credit
Dec 31	Interest expense	13619.59
	Interest payable		13619.59
	(To record interest)
Dec 31	Insurance expense (234972*6/36)	39162
	Prepaid expense		39162
	(To record insurance expense)