DeeDee Double Entry has two loans outstanding as of 12/31/2017. Interest is paid annually on January...

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DeeDee Double Entry has two loans outstanding as of 12/31/2017. Interest is paid annually on January 1st. The facts on each loan are as follows: Onstar Bank Loan – outstanding since January 1, 2017, with a 3.5% interest rate. This loan was taken out to finance the construction of the self-constructed Storage Building. Interest for the year and 15% of the principle will be paid to the bank on January 1, 2018. Except for recording the initial cash received and loan, no additional entries have been made. Coldstar Bank Loan – also outstanding all of 2017 with a 4.1% interest rate. Interest is due on January 1, 2018. The principle is due on January 1, 2023. Since interest will not be paid to the Bank until 2018, DeeDee’s office staff did not accrue any interest.
a) What would be the interest on the two bank loans?
b) What do we do with the 15% of the principle for the OnStar Bank Loan?
c) Is it necessary to accrue the interest on the two loans?

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Robert · Accepted Answer

DeeDee Double Entry has two loans outstanding as of 12/31/2017. Interest is paid annually on January 
1st. The facts on each loan are as follows: Onstar Bank Loan – outstanding since January 1, 2017, with a 
3.5% interest rate. This loan was taken out to finance the construction of the self-constructed Storage 
Building. Interest for the year and 15% of the principle will be paid to the bank on January 1, 2018. Except 
for recording the initial cash received and loan, no additional entries have been made. Coldstar Bank 
Loan – also outstanding all of 2017 with a 4.1% interest rate.

DeeDee Double Entry has two loans outstanding as of 12/31/2017. Interest is paid annually on January 1st. The facts on each loan are as follows: Onstar Bank Loan – outstanding since January 1, 2017,...

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