On March 1, Delvis Cromartie borrowed $7,500 on a five-month, 8% note from Florida First Bank & Trust to open a business, Orchids & Such Nursery. The debt was in the company’s name. The note and interest will be repaid on July 31.
1. Use the accounting equation to record the receipt of the funds.
2. Suppose Orchids & Such Nursery wants to prepare an income statement for the month of March. Use the accounting equation to accrue interest for the month.
3. Assume that Orchids & Such Nursery accrues the interest expense related to this note at the end of each month. What is the balance in the interest payable account on May 31?
4. Use the accounting equation to record the transaction on July 31, when the loan is repaid with the interest. (Assume 3. above was completed.)