Question

December 18, 2017. Waren Sports Supply borrowed $60,000 from First American Bank and Trust by issuing a two-year note payable with a stated annual interest rate of 5%.$60,000 was received from the bank and deposited.

Waren's Year-End procedures for 2017.

Interest Expense. Interest on loans is paid annually on the anniversary of the note. Interest accruals are calculated using a 365-day year with the day after the note was made counting as the first day.

How many days should be included in the interest calculation? 12 or 13 days?

Make a journal entry for Interest Expense following year-end procedures.

Answer 1

13 days should be included in the interest calculation, from December 19, 2017 through December 31, 2017.

First calculate the amount of interest expense to be accrued on December 31, 2018, as follows:

Interest expense to be accrued = $60,000 x 5% x 13/365 = $106.85

Now prepare the journal entry to record the interest expense as follows:

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2017	Interest Expense	106.85
	Interest Payable		106.85