Question

continuation of the Cookie Chronicle from Chapters 1 through 9.)

CCC10 Natalie is thinking of repaying all amounts outstanding to her grandmother. Recall that Cookie Creations borrowed $2,000 on November 16, 2017, from Natalie’s grandmother. Interest on the note is 9% per year, and the note plus interest was to be repaid in 24 months. Recall that a monthly adjusting journal entry was prepared for the months of November 2017 (1/2 month), December 2017, and January 2018.

Instructions

(a) Calculate the interest payable that was accrued and recorded to January 31, 2018. Round to nearest dollar.

(b) Calculate the total interest expense and interest payable from February 1 to August 31, 2018. Prepare the journal entry at August 31, 2018, to bring the accounting records up to date. Round to nearest dollar.

(c) Natalie repays her grandmother on September 15, 2018—10 months after her grandmother extended the loan to Cookie Creations. Prepare the journal entry for the loan repayment.

Answer 1

Answer (a):

Given that monthly adjusting journal entry was prepared for the months of November 2017 (1/2 month), December 2017, and January 2018.

Interest payable that was accrued and recorded to January 31, 2018 = $2,000 * 9%/12 = $15

Interest payable that was accrued and recorded to January 31, 2018 = $15

Answer (b):

Total interest expense and interest payable from February 1 to August 31, 2018 = $2,000 * 9% * 7/12 = $105

Answer (c):

Interest payable:

November 2017 (1/2 month) = $7.50

December 2017 = $15

January 2018 = $15

Feb 2018 to Aug 2018 = $105

Total interest payable = $7.50 + $15 + $15 + $105 =$142.50

Interest expense from Sep 1 to Sep 15 = $7.50