Question

What is the appropriate adjusting entry on March 31st for the $3000 Note Payable that was signed on January 1st? The interest rate applicable to this note is 6%. OR Int-Exp 180 CR Int-Pay 180 What is the appropriate adjusting entry on March 31st for the insurance that was purchased on January 29th for $1.250 and covers the period February 1st - June 30th? DR Ins-Exp 500 CR PPD-ins 500

Answer 1

Adjusting Entries
Date	Account Titles and Explanations	Debit	Credit
Mar. 31	Interest Expense ($3,000*6/100*3/12 months)	$45
	Interest Payable		$45
	(To record the interest for one month on the 6% note)
	Explanation: Interest expense is accrued at the end of March for a period of 3 months from January to March, when interest expense is accrued, the interest expense that always has debit balance is debited to book the interest expense and interest payable is a current liability that is payable in future date.
Adjusting Entries
Date	Account Titles and Explanations	Debit	Credit
Mar. 31	Insurance Expense ($1,250/5 months * 2 months)
	Prepaid Insurance
	(To record the expire of 2 months of insurance)
	Explanation: Prepaid insurance of $1,250 for total 5 months covering for the period from February to June and it is expired for two months (February & March) so the expired insurance of two months is recognized as expense at the end of March so insurance expense is debited to book the expense and prepaid insurance is a current asset and that is debited when it is paid so to decrease it, it is credited with the expired amount.