Chapter 4
Current Liabilities
167
AP-5A (
7
)
On December 31, 2016, Zaharah Company negotiates a loan from the bank for $60,000 with
a term of six years, bearing an annual interest rate of 6%. Of this loan, $10,000 plus interest is
payable every December 31. Zaharah has a December 31 year-end, and it prepares adjusting
entries and financial statements only once a year.
Required
a) Prepare the journal entry to record the cash receipt from loan borrowing.
Date
Account Title and Explanation
Debit
Credit
b) Prepare the journal entry to record the payment of the first installment plus interest on
December 31, 2017.
Date
Account Title and Explanation
Debit
Credit
c) What would be the total loan balance on December 31, 2017? How much of the loan
would be considered current?
