Question

Agrico Inc accepted a 6 month, 9% (annual rate), $8,000 note from one of its customers on November 1, 2016; interest payable with the principal at maturity.

a. Use the horizontal model to record the interest OWED TO AGRICO on the customer's books during its year ended December 31, 2016.

b. Use the horizontal model to record payment of the note and interest at maturity on the customer's books.

Answer 1

a)
Balance Sheet			Income Statement
Assets	Liabilities	Owners' Equity	Net Income	Revenue	Expenses
	Interest payable = 120				Interest Expense = $120
Account titles	Debit	Credit
Interest Expense	$                              120.00
Interest Payable		$                    120.00
*Interest Payables = $8000 x 9%/12 x 2 months	$                              120.00
b)
Balance Sheet			Income Statement
Assets	Liabilities	Owners' Equity	Net Income	Revenue	Expenses
Cash =  - 8360	Interest Payable= -360
	Notes payable = -8000
Account titles	Debit	Credit
Interest Payable (8000 x 9%/12 x 6)	$                              360.00
Notes payable	$                           8,000.00
Cash		$                 8,360.00