Step 10

Our opening balances for the debt on the assets amounted to $130 for the current portion and $500 for the long-term portion. The current portion being the portion payable within the year.

Our payment is made in June 2000 and includes interest from January 1, 2000 to June 30, 2000 amounting to $30, or $600 X 10% X 6/12 months. We can accrue this amount increasing our payable at June 30, 2000 to $160. (This amount was paid in the year per our synoptic.)

  dr cr
Interest expense 30  
Bank loan - current portion   30

We also need to accrue the interest expense to the end of 2000.  As this is payable within a year we will record it in the current portion of the Bank Loan.  We owe $500 from June 30, 2000, the interest expense to accrue is therefore $500 X 10% X 6/12 months or $25.

  dr cr
Interest expense 25  
Bank loan - current portion   25

Also we need to reclassify the portion of the long-term loan that is now payable within a year to the current portion.  We will reclassify $100 to the current portion.

  dr cr
Bank loan 100  
Bank loan - current portion   100

As the debt was incurred for capital assets and is recorded in the capital fund, the revenue received to repay the debt would be recognized as a capital contribution of the period.  We need to reclassify or rename this revenue.

  dr cr
Contribution for debt 100  
Deferred capital contributions   100

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