Question

On the first day of January, Harris, Inc. borrowed $2,000 on a one-year note payable bearing interest at 9% per year. The note specifies that principal and interest must be paid in full at the end of the one-year period. On June 30, the adjusted trial balance will show Interest Payable of ________.

A. $140 debit
B. $180 credit
C. $90 credit
D. $70 credit
E. None of the above

Answer 1

As of June 30, Harris, Inc.'s adjusted trial balance will show a $90 credit in the Interest Payable account, representing six months of accrued interest on a $2,000 note at a 9% annual rate. The correct answer is: C. $90 credit.

Step-by-step explanation:

On June 30, Harris, Inc. will need to record the interest that has accrued on a $2,000 note payable with a 9% annual interest rate.

Since the note was taken out on the first day of January, and by June 30, six months have passed, the interest for those six months must be calculated to determine the Interest Payable that will appear on the adjusted trial balance. The interest can be calculated as follows:

$2,000 × 9% × (⅖ year) = $90

Therefore, the interest for six months is $90. This amount represents the interest expense that has been incurred but not yet paid as of June 30, and would be recorded as a credit in the Interest Payable account. The correct answer is: C. $90 credit.