Question

Exercise 2-10 (Algo) Adjusting entries; solving for unknowns (LO2-5, 2-6] The Eldorado Corporation's controller prepares adjusting entries only at the end of the reporting year. The following adjusting entries were prepared on December 31, 2021: Credit Debit 27,000 27,000 Interest expense Interest payable Rent expense Prepaid rent Interest receivable Interest revenue 28, 125 28,125 930 930 Additional information: 1. The company borrowed $360,000 on March 31, 2021. Principal and interest are due on March 31, 2022. This note is the company's only interest-bearing debt. 2. Rent for the year on the company's office space is $37,500. The rent is paid in advance. 3. On October 31, 2021, Eldorado lent money to a customer. The customer signed a note with principal and interest at 10.0% due in one year. Required: 1. What is the interest rate on the company's note payable? 2. The 2021 rent payment was made at the beginning of which month? (Do not round your intermediate calculation.) 3. How much did Eldorado lend its customer on October 31? 1. % 2. Interest rate Month of rent payment Principal 3.

Answer 1

1.

Interest rate = ?

Borrowings = $360,000

Borrowings were taken on March 31, 2021

Interest expense on December 31, 2021 = Borrowings x Interest rate x 9/12

27,000 = 360,000 x Interest rate x 9/12

Interest rate = 10%

2.

Annual rent expense = $37,500

Rent expense recognized for the year = $28,125

Monthly rent expense = Annual rent expense / 12

= 37,500/12

= $3,125

Rent expense was recorded for = Rent expense recognized for the year/ Monthly rent expense

= 28,125/3,125

= 9 months

Hence, prepaid rent was paid for April 1

3.

Loan was granted on October 31

Interest rate = 10%

Interest revenue = $930

Interest revenue = Principal x Interest revenue x x 2/12

930 = Principal x 10% x 2/12

Principal = $55,800

1.	Interest rate	10%
2.	Month of rent payment	April 1
3.	Principal	$55,800

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