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Chapter 13: Question 2BE (page 692)

BE13-2 (L01) Upland Company borrowed \(40,000 on November 1, 2017, by signing a \)40,000, 9%, 3-month note. Prepare Upland’s November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry.

Short Answer

Expert verified

The total amount of interest expense paid by the company over the 3 months notes is $900.

Step by step solution

01

Meaning of Loan

A person or business entity borrows an amount from a lending institution for a pre-determined interest payment. The purpose of the loan is to meet the needs of money. It is shown as a liability on the balance sheet.

02

Journal Entries

Date

Accounts and Explanation

Debit $

Credit $

November 1, 2017

Cash

$40,000

Notes Payable

$40,000

December 31, 2017

Interest Expenses

$600

Interest Payable($40,000 x 9% x 2/12)

$600

February 1, 2018

Notes Payable

$40,000

Interest Payables

$600

Interest expenses($40,000 x 9% x 1/12)

$300

Cash

$40,900

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Question: On February 1, 2018, one of the huge storage tanks of Viking Manufacturing Company exploded. Windows in houses and other buildings within a one-mile radius of the explosion were severely damaged, and a number of people were injured. As of February 15, 2018 (When the December 31, 2017, financial statements were completed and sent to the publisher for printing and public distribution), no suits had been filed or claims asserted against the company as a consequence of the explosion. The company fully anticipates that suits will be filed and claims asserted for injuries and damages. Because the casualty was uninsured and the company is considered at fault, Viking Manufacturing will have to cover the damages from its own resources.InstructionsDiscuss fully the accounting treatment and disclosures that should be accorded the casualty and related contingent losses in the financial statements dated December 31, 2017.
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