# Scrimiger Paints wants to upgrade its machinery and on September 20 takes out a loan from the bank in the amount of $500,000. The terms of the loan are 2.9% annual interest rate and payable in 8 months. Interest is due in equal payments each month. Compute the interest expense due each month. Show the journal entry to recognize the interest payment on October 20, and the entry for payment of the short-term note and final interest payment on May 20. Round to the nearest cent if required. FindFindarrow_forward ### Principles of Accounting Volume 1 19th Edition OpenStax Publisher: OpenStax College ISBN: 9781947172685 #### Solutions Chapter Section FindFindarrow_forward ### Principles of Accounting Volume 1 19th Edition OpenStax Publisher: OpenStax College ISBN: 9781947172685 Chapter 12, Problem 12EA Textbook Problem 1 views ## Scrimiger Paints wants to upgrade its machinery and on September 20 takes out a loan from the bank in the amount of$500,000. The terms of the loan are 2.9% annual interest rate and payable in 8 months. Interest is due in equal payments each month.Compute the interest expense due each month. Show the journal entry to recognize the interest payment on October 20, and the entry for payment of the short-term note and final interest payment on May 20. Round to the nearest cent if required.

To determine

Introduction:

A short term notes payable is a promise to pay the amount of loan at a fixed rate of interest on a fixed date. The term of loan is less than one year.

To compute:

Amount of monthly interest payment. Also record journal entries for interest payment and loan repayment.

### Explanation of Solution

Formula to calculate interest payment:

Interest=(Principal×InterestRate×Time)

Sustitute, $500,000 in principal, 2.9% in interest rate and 1/12 in time. Interest=($500,000×2.9%×112)=$1,208 Therefore, amount of interest payment per month is$1,208.

Record interest payment:

 Date Account Debit ($) Credit ($) October, 24 Interest Expense ($500,000×2.9%×112) 1,208 Cash 1,208 (To record interest payment on loan) Table(1) • Interest expense is an expense and it is increased by$1,208

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