Accrual of Interest on a Loan
On July 1, Paxson Corporation takes out a 12%, two-month, $50,000 loan at Friendly National Bank. Principal and interest are to be repaid on August 31.
Required
1. Prepare the journal entries for July 1 to record the borrowing, for July 31 to record the accrual of interest, and for August 31 to record repayment of the principal and interest.
2. Evaluate the following statement: It would be much easier not to bother with an adjusting entry on July 31 and simply record interest expense on August 31 when the loan is repaid.