Question

On December 1, Casualty Insurance Company borrowed $50,000 at a 6.0% interest rate from One Mutual Bank. The note payable plus interest will not be paid until April 1 of the following year. The company's annual accounting period ends on December 31 and adjustments are only made at year-end. The adjusting entry needed on December 31 is

Answer 1

interest expense 250 debit

interest payable 250 credit

to record accrued interest

Step-by-step explanation:

on December 31th the company will recognize the accrued interest from December 1st to December 31th year-end date

principal x rate x time = interest

Is always important to notice that rate and time must be expressed on the same metric. generally the rate are annual, so we will express time as fraction of a 12 months year

50,000 x 6% x 1/12 = 250

This will be the amount for accrued interest at december 31th