Financial Act Demonstration Problem #3

Financial Act Demonstration Problem#3

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: The entry to record depreciation is always the same! Debit to Depreciation Expense and Credit to Accumulated Depreciation. Dr. Feb 28 Depreciation Expense 125 27 Cr. Accumulated Depreciation-off eq. 125 Dr. Cr. Feb 28 Depreciation Expense 250 Accumulated Dep. Lease Imp 250 D. Analysis: When borrowing long-term, you must pay interest. To calculate simple interest, the formula is: Principal x Rate x Time. In this example, Cainas Company has borrowed \$3,000 and has not made any payments to reduce the balance (the first payment is due 3/31). But, because Cainas Company has had use of the funds since January, it should record the interest expense the company has incurred to use the borrowed funds. Principal x Rate x Time = \$ 3,000 x 8% x 2/12. Remember: 8% is an annual (yearly rate). We are calculating 2 months worth of interest. Since we have not paid the interest yet, we have also incurred a liability. Debit to Interest Expense and Credit to Interest Payable. Feb 28 Interest Expense Interest Payable Dr. 40 Cr. 40 E. Analys...
View Full Document

This note was uploaded on 01/22/2014 for the course ACG 2021 taught by Professor Linkovich during the Spring '08 term at University of South Florida - Tampa.

Ask a homework question - tutors are online