On June 1, 2015 Beximco company/Prime Limited, took loan Tk. 2,00,000 from Sonali Bank Ltd. and signed a note for a period of 6 months with 10% interest.
Required:
(i) Prepare the journal entry on June 1, 2015 lo record the loan.
(ii) Prepare the adjusting entry on June 30, 2015.
(iii) Prepare the journal entry at maturity on November 30, 2015.
(i) Journal Entry on June 1, 2015 to record the loan:
Assuming the loan is taken in cash:
Journal Entry:
Date: June 1, 2015
Debit: Cash (Tk. 2,00,000)
Credit: Notes Payable (Tk. 2,00,000)
Explanation:
- Cash is debited because the company receives Tk. 2,00,000 in cash from Sonali Bank Ltd.
- Notes Payable is credited because the company issues a promissory note (note payable) to Sonali Bank Ltd. for Tk. 2,00,000, acknowledging the debt.
(ii) Adjusting Entry on June 30, 2015:
Assuming interest accrues monthly at 10% annual rate, the adjusting entry at the end of June 30, 2015, would be for one month’s interest:
Adjusting Entry:
Date: June 30, 2015
Debit: Interest Expense (Tk. 2,000)
Credit: Interest Payable (Tk. 2,000)
Explanation:
- Interest Expense is debited because the company recognizes interest expense for the month of June calculated as Tk. 2,00,000 * 10% / 12 months = Tk. 2,000.
- Interest Payable is credited because the company accrues interest payable as of June 30, 2015.
(iii) Journal Entry at Maturity on November 30, 2015:
Assuming the loan is repaid in full at maturity, including interest:
Journal Entry:
Date: November 30, 2015
Debit: Notes Payable (Tk. 2,00,000)
Debit: Interest Payable (Tk. 2,000)
Credit: Cash (Tk. 2,02,000)
Explanation:
- Notes Payable is debited to remove the liability as the company repays the principal amount of Tk. 2,00,000.
- Interest Payable is debited to clear the accrued interest liability of Tk. 2,000.
- Cash is credited because the company pays Tk. 2,02,000 in total (Tk. 2,00,000 principal + Tk. 2,000 interest).
These entries ensure that the loan and interest are properly recorded and accounted for in the company’s books.