Answer:
The correct answer is (B) debit Interest Expense; credit Interest Payable.
Step-by-step explanation:
Under the accrual method of accounting, the account 'Interest Expense' shows the interest that occurred during the period of time covered by the financial statement. When that interest is past its due date for payment, it should be recorded as 'Interest Payable'. Thus, the adjusting entry for accrued interest is: debit Interest Expense (decreases); credit Interest Payable (increases)