Question

On 6/1, a company lent an employee $4000 at 5% interest. The employee had to pay it off plus interest in 5 months. How much interest did the employee pay on the due date?

Create journal entries for the above question.

Date	Account Titles	Debits	Credits

Answer 1

Given information,

Lent amount = $4000

Rate of interest = 5% per annum

Tenure = 5 months

Date of lending = 6/1

Due date for payment = 6/5

Interest to be paid = $4000 × 5% × (5÷12)

= $83.33

Interest paid by employer and the due date = $83.33

Journal entries :-

Date	particulars	Debit ($)	Credit ($)
6/1	loan to employee a/c	4000
	To bank a/c		4000
	(Being loan given to emoloyee)
6/5	Bank a/c	4083.33
	To loan to employee a/c		4000
	To interest on loan to employee a/c		83.33
	(Being loan amount and interest paid by employee)
	Interest on loan to employee a/c	83.33
	To profit and loss a/c		83.33
	(Being intrest on loan to employee transfered to profit and loss a/c)

These are the information required to solve the given question.

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