Question

And company borrowed $4000 from the bank at an interest rate of 9% by the end of the accounting. The loan has been outstanding for 30 days. What is the required adjusting entry?

Answer 1

The adjusting entry for a $4000 loan at 9% interest for 30 days is to debit Interest Expense and credit Interest Payable for $29.59.

Step-by-step explanation:

The student's question asks for the required adjusting entry for a company that borrowed $4000 at a 9% annual interest rate, with the loan being outstanding for 30 days. To calculate the interest for the period, we would use the formula Interest = Principal × Rate × Time. Here, the principal is $4000, the rate is 9% per year (or 0.09), and time is 30/365 since we are dealing with a 30-day period within a year.

Interest = $4000 × 0.09 × (30/365) = $29.59 (rounded to two decimal places).

The adjusting journal entry at the end of the accounting period would then be to debit (increase) Interest Expense for $29.59 and credit (increase) Interest Payable for $29.59, reflecting the unpaid interest on the loan.

Debit: Interest Expense $29.59

Credit: Interest Payable $29.59