Question

Fly Away Inc. borrowed $120,000 on October 1 by signing a note payable to Avenue One Bank. The interest expense for each month is $600. The loan agreement requires Fly Away Inc. to pay interest on December 31. 1. 2. Make Fly Away Inc.'s adjusting entry to accrue interest expense and interest payable at October 31, at November 30, and at December 31. Date each entry and include its explanation. Post all three entries to the Interest Payable account. You need not take the balance of the account at the end of each month. Record the payment of three months' interest at December 31. 3. Requirement 1. Make Fly Away Inc.'s adjusting entry to accrue interest expense and interest payable at October 31, at November 30, and at December 31. Date each entry and include its explanation. (Record debits first, then credits. Enter explanations on the last line.) Make the adjusting entry to accrue monthly interest expense for October. Journal Entry Date Accounts and Explanation Debit Credit Oct

Answer 1

1.

Date Particulars Oct 31 Interest Expenses Interest Payable Debit Credit $600 $600 (to record interest expense accrued for the month of October) $600 $600 Nov 30 Interest Expenses Interest Payable (to record interest expense accrued for the month of November) $600 $600 Dec 31 Interest Expenses Interest Payable |(to record interest expense accrued for the month of December)

2.

INTEREST PAYABLE Oct 31 $600 Nov 30 $600 Dec 31 $600 Balance $1,800

3.

Date Particulars Dec 31 Interest Payable Cash (to record payment of interest on December 31). Debit Credit $1,800 $1,800

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