Question

A company borrows $2,000 from a bank at 12% interest for 60 days. To properly accrue interest on December 31, the company's accountant should debit interest expense and credit interest payable for________?

Options:
a. $24
b. $120
c. $240
d. $480

Answer 1

To properly accrue interest on December 31, the company's accountant should debit interest expense and credit interest payable for $40.

Step-by-step explanation:

To properly accrue interest on December 31, the company's accountant should debit interest expense and credit interest payable for $40.

To calculate the interest expense, we use the formula: Interest = Principal x Rate x Time.
Given that the principal borrowed is $2,000, the interest rate is 12% (which is 0.12 as a decimal), and the time period is 60 days (which is 60/365 as a decimal), we can calculate the interest expense as follows: Interest = $2,000 x 0.12 x 60/365 = $39.73 (approximately $40).