Question

Interest Payable Gohda, Inc., takes out a 12%, 90-day, $92,000 loan with First Rate Savings on March 1, 2017. Assume a 360-day year. Required: 1. Identify and analyze the transaction to take out the loan on March 1, 2017 Activity Investing X Accounts Cash increase Notes Payable Increase Statement(s) Balance sheet only POR Che My 1) Determine activity 13) Financing activities are transactions (other than payment of interest) involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners. Businesses borrow money or rate money from selling of the stock 1b) Investing activities are obtaining money by building up operations of purchasing westment products such as stocks, bonds and annuities. 1) Operating activities are the sale of products and/or services, and the costs incurred to operate a business 2) Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases 3) Balance Sheet accounts: Assets Liabilities Stockholders' Equity Income Statement accounts: Revenues. Expenses Net Income (Equations must stay in balance) 4) Record receipt of cash (asset) with note payable liability).

Answer 1

1. Notes Payable Issued on 1st March $92,000.

Solution -

Activity Financing Accounts Cash Increase, Notes Payable Increase Statement Balance Sheet Only Balance Sheet Income Statement Assets Liabilities + Revenue Expenses = Net Income Stockholder's Equity $ Cash $ 92,000 Notes Payable $ 92.000 No Entry $ $ $

2. Interest Expense incurrd on 1st April on $92,000 at 12%

Solution -

Activity Operating Accounts Expense Increase, Interest Payable Increase Statement Income Statement, Balance Sheet Balance Sheet Income Statement Assets Liabilities + Revenue Expenses = Net Income Stockholder's Equity $ $ Interest Payable $ 920 No Entry $ - Interest Expense $ 920 $ (920)

Interest Expense = $92,000 X 12% X 30/360 Days = $920