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case - fraufreda - 11-17-2010
In Dec 2009, X company borrowed from a bank $200,000 payable in 5 years with 7% interest. their new accountant recognised the whole interest (amounted $14000) in the 2009 without knowing that the monthly instalments ($3333 principal + $ 234 interest = $3567 per month) already include a portion of the interest. the accountant passes the following entry every month
Dr bank loan 3567
Cr cash 3567
Information
Retained earnings (31.12.2009) = 50000
what are the possible accounting treatments for this situation.