# Scenario: It's 12/31 and I'm doing financial statement accounting adjustments. On October 1st, my company borrowed \$25,000 from the a bank involving a 1-year, 12% note payable. Principal ands interest are due after 1 year. On the Balance Sheet, I thought the Liabilities and Stocholders Equity would be \$7k and -\$7k, respectively, but that's not correct. I figured for the Income Statement, the Expenses and Net Income would be \$7k and -\$7k, respectively. That also isn't correct. The categories are correct, but my \$ figures aren't. Could someone please help.

Question
Asked Sep 21, 2019
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Scenario: It's 12/31 and I'm doing financial statement accounting adjustments. On October 1st, my company borrowed \$25,000 from the a bank involving a 1-year, 12% note payable. Principal ands interest are due after 1 year.

On the Balance Sheet, I thought the Liabilities and Stocholders Equity would be \$7k and -\$7k, respectively, but that's not correct. I figured for the Income Statement, the Expenses and Net Income would be \$7k and -\$7k, respectively. That also isn't correct. The categories are correct, but my \$ figures aren't. Could someone please help.

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## Expert Answer

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Step 1

First of all, we will see the calculations with respect to borrowings made-

Bank borrowing through notes payable raised is \$25,000 for 1 year @12% interest on oct 1

therefore, the accrued interest for the period of 3mnths (oct 1 to Dec 31) will be

= 25,000x12%x3/12

= \$750

Step 2

There will be two accounting entries to be posted in books for this transaction :

Step 3

Assuming, this is the only transaction carried on during the year, the following will be the position of Income statement & Balance...

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