Accounting
#9 Unrecorded Liability: Adjusting Entry
Refer to PE 4-8. (1) Make the adjusting entry necessary on the company’s books with respect
to this loan on December 31. (2) Make the journal entry necessary on the company’s
books on the following April 30 to record payment of interest for the first year of the loan.
Note: When making this April 30 entry, don’t forget the adjusting entry that was made on
December 31.
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Answers
(1) December 31 Adjusting Entry: Debit: Unearned Interest Revenue $60,000 Credit: Interest Payable $60,000 (2) April 30 Journal Entry: Debit: Interest Payable $60,000 Credit: Interest Revenue $60,000 Explanation: The adjusting entry made on December 31 adjusted the Interest Payable and Unearned Interest Revenue accounts to prepare the statement of financial position for the year ended. The April 30 journal entry records the payment of interest for the first year of the loan by reducing the Interest Payable and increasing Interest Revenue accounts.
