Accrual of interest on a loan

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Accrual of Interest on a Loan

On July 1, Paxson Corporation takes out a 12%, two-month, $50,000 loan at Friendly National Bank. Principal and interest are to be repaid on August 31.

Required

1. Prepare the journal entries for July 1 to record the borrowing, for July 31 to record the accrual of interest, and for August 31 to record repayment of the principal and interest.

2. Evaluate the following statement: It would be much easier not to bother with an adjusting entry on July 31 and simply record interest expense on August 31 when the loan is repaid.

Reference no: EM13954123

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