Herrindale Mart borrows $420,000 on July 1 with a short-term loan that has an annual interest rate of 5% which is payable on the first day of each subsequent quarter. What will Herrindale Mart need to accrue on August 31, assuming that no accrual has yet been made

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Question:

Herrindale Mart borrows $420,000 on July 1 with a short-term loan that has an annual interest rate of 5% which is payable on the first day of each subsequent quarter. What will Herrindale Mart need to accrue on August 31, assuming that no accrual has yet been made

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Answer:August 31, 202x (assuming a 360 day year)Dr Interest expense 1,750     Cr Interest payable 1,750Explanation:The journal entry to record the loan:July 1 , 202xDr Cash 420,000     Cr Notes payable 420,000The journal entry to record accrued interest on the loan:August 31, 202x (assuming a 360 day year)Dr Interest expense 1,750     Cr Interest payable 1,750Interest expense = $420,000 x 5% x 2/12 = $1,750

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