(Solved Homework): 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:

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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 (10000003%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 (10000003%1/12)	2500
	Cash a/c		15000
	(To record interest paid)

August 1	Interest expenses a/c (10000003%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 (6000003%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 (6000003%1/12)	1500
	Cash a/c		609000
	(To record interest and part of interest paid)

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