Not sure if this example gains interest

USA Discussion in 'Exams and Studying' started by Andrew Graber, Sep 26, 2016.

  1. Andrew Graber

    Andrew Graber

    Sep 26, 2016
    Likes Received:
    So, I'm given a problem that says:

    On September 1, 2018, the company borrows $22,000 from a local bank and signs a note. Principal and interest at 12% will be paid on August 31, 2019.

    So, they sign a note and at that point, cash is debited for $22,000 and notes payable is credited that much. I'm supposed to write a year-end adjusting entry for this (I'm given the option to say no entry is needed). I'm not sure if I would need to put anything, because it says principal and interest will be paid in august, 2019. I assume this means that on December 31, 2018, nothing has changed and I don't need to put an adjusting entry. Is my logic flawed?
    Andrew Graber, Sep 26, 2016
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  2. Andrew Graber

    Triest123 VIP Member

    Feb 12, 2012
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    You should make an accrual for the interest expense for 4 months
    Triest123, Sep 27, 2016
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