Question

Raxon Company borrowed $40,000 from the bank signing a 6%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be:A)debit Interest Expense, $2,400; credit Interest Payable, $2,400.B)debit Interest Expense, $200; credit Interest Payable, $200.C)debit Note Payable, $2,400; credit Cash, $2,400.D)debit Cash, $600; credit Interest Payable, $600

Answer 1

B)debit Interest Expense, $200; credit Interest Payable, $200

Step-by-step explanation:

The adjusted journal entry for the interest expense is shown below:

Interest expense A/c Dr $200

To Interest payable $200

(Being the interest adjusted entry is recorded)

Since we have to record the interest expense from September 1 to September 30 which reflects 1 month and the computation of interest expense is shown below:

= Principal × rate × (number of month ÷ total number of months in a year)

= $40,000 × 6% × (1 ÷ 12)

= $200