Chapter 4
Current Liabilities
191
AP-5B (
7
)
On July 1, 2016, Merrit Company borrowed a $200,000 bank loan with a term of four years,
bearing an annual interest rate of 5%. Of this loan, $50,000 plus interest is payable every
June 30. Merrit has a June 30 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 the arranged loan.
Date
Account Title and Explanation
Debit
Credit
b) Prepare the journal entry to record the payment of the first installment plus interest on
June 30, 2017.
Date
Account Title and Explanation
Debit
Credit
c) What would be the total loan balance on June 30, 2017? How much of the loan would
be considered current?
