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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On April 1, Ringo Company borrowed $20,000 from its bank by issuing a 9%, 12-month note, with the interest to be paid on the maturity date. Prepare journal entries to record the issuance of the note and the related year-end adjusting entry on December 31.

To determine

Prepare the journal entry to record the issuance of the note and year-end adjusting for Company R.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

To record the journal entry for the issuance of note:

DateAccount title and explanationDebit ($)Credit ($)
April 1Cash20,000 
 Note payable 20,000
 (To record the issuance of note)  

Table (1)

  • Cash is an asset account and it is increased. Therefore, debit cash account with $20,000.
  • Note payable is a liability account and it is increased. Therefore, credit note payable with $20,000...

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