Question

Question: The following three separate situations require adjusting journal entries to prepare financial statements as

of April 30. For each situation, present both:

∙ The April 30 adjusting entry.

∙ The subsequent entry during May to record payment of the accrued expenses.

Entries can draw from the following partial chart of accounts: Cash; Accounts Receivable; Prepaid

Interest; Salaries Payable; Interest Payable; Legal Services Payable; Unearned Revenue; Revenue; Salaries

Expense; Interest Expense; Legal Services Expense; Depreciation Expense.

a. On April 1, the company retained an attorney for a flat monthly fee of \(3,500. Payment for April legal

services was made by the company on May 12.

b. A \)900,000 note payable requires 12% annual interest, or \(9,000, to be paid at the 20th day of each

month. The interest was last paid on April 20, and the next payment is due on May 20. As of April 30,

\)3,000 of interest expense has accrued.

c. Total weekly salaries expense for all employees is $10,000. This amount is paid at the end of the day

on Friday of each five-day workweek. April 30 falls on a Tuesday, which means that the employees

had worked two days since the last payday. The next payday is May 3.

Short answer

Interest expenses is debited and interest payable is credited by $3,000. For payament of interest, interest expenses debited by $6,000, interest payable debited by $3,000 and cash credited by $9,000.

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of interest payable

The interestis due, but the payment is not made.

Entries related to interest payment

	Journal entry
Date	Particulars	Debit	Credit
April 30	Interest Expense	$3,000
	Interest Payable		$3,000
	(Adjustment entry of interest payable)
May 20	Interest Expense	$6,000
	Interest Payable	$3,000
	Cash		$9,000
	(Payment of interest)