Answered Essay: Please explain this and show each step..

Please explain this and show each step..

On August 1, 2014 Y borrowed $1,000,000 at 3%. Y pays interest every 6 months with interest payments every February 1 and August 1. Y will repay $400,000 of the principal on August 1, 2015 and the remainder on February 1, 2016. Assume Y only makes AJEs every December 31 AND does NOT make reversing entries. Prepare the entries Y should make on:

a) August 1, 2014

b) December 31, 2014

c) February 1, 2015

d) August 1, 2015

e) December 31, 2015

f) February 1, 2016

Expert Answer

 

JOURNAL ENTRIES :

DATE ACCOUNTS & EXPLANATION DEBIT CREDIT
2014
Aug 1 Cash a/c 1000000
      Loan payable a/c 1000000
(To record borrowed money)
Dec 31 Interest expenses a/c (1000000*3%*5/12) 12500
       Interest payable a/c 12500
(To record accured interest exp)
2015
Feb 1 Interest payable a/c 12500
Interest expenses a/c (1000000*3%*1/12) 2500
       Cash a/c 15000
(To record interest paid)
August 1 Interest expenses a/c (1000000*3%*6/12) 15000
Loan payable a/c 400000
         Cash a/c 415000
(To record interest and part of loan paid)
Dec 31 Interest expenses a/c (600000*3%*5/12) 7500
       Interest payable a/c 7500
(To record accured interest exp)
2016
Feb 1 Loan payable a/c 600000
Interest payable a/c 7500
Interest expenses a/c (600000*3%*1/12) 1500
          Cash a/c 609000
(To record interest and part of interest paid)
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