On April 1, Mark Hamm borrowed $15,000 on an eight-month, 6% note from State Bank of New York to open a business, Gymnastics World. The debt was in the company’s name. The note and interest will be repaid on November 30.
1. Use the accounting equation to show how Gymnastics World would record the receipt of the funds.
2. Suppose Gymnastics World wants to prepare an income statement for the month of April. Use the accounting equation to show how the firm will accrue interest for the month.
3. Assume that Gymnastics World accrues the interest expense related to this note at the end of each month. What is the balance in the interest payable account on September 30?
4. Use the accounting equation to show how the firm would record the transaction on November 30, when the loan is repaid with the interest. (Assume 3. above was completed.)