Final answer:
The adjusting entry for the interest incurred on a loan of $200,000 with a 12% annual interest rate for two months is a debit of $4,000 to Interest Expense and a credit of $4,000 to Interest Payable.
Step-by-step explanation:
The student's question involves the calculation of the interest accrued on a loan over a short period before the year-end closing of financial statements. On November 1, 2024, the company borrowed $200,000 at an annual interest rate of 12%. By December 31, 2024, the company needs to recognize the interest expense incurred for two months.
To prepare the necessary adjusting entry, we first calculate the interest for the two month period: Interest = Principal × rate × time = $200,000 × 12% × (2/12) = $4,000. The adjusting entry on December 31, 2024, to record the accrued interest would be a debit to Interest Expense for $4,000 and a credit to Interest Payable for $4,000.