Question

corporation borrowed money through an 8-month, 9% note for $100,000 on October 1, 2020. The note is due on May 30, 2021. The correct adjusting entry at year-end, December 31, 2020 (assuming no other adjustments had been made) would include an: Select one: a. Decrease to interest payable for $6,000 b. Increase to interest expense for $3,750 c. Increase to interest payable for $9,000 d. Increase to interest payable for $2,250 e. Decrease to cash for $6,000

Answer 1

d. Increase to interest payable for $2,250

Step-by-step explanation:

At year end which is December 31, 2020, the company has incurred an interest expense of 3 months on the amount borrowed since October 1 to December 31 is a period of three months.

As a result, the interest expense to be accrued for is computed thus:

accrued interest expense= $100,000*9%*3/12

accrued interest expense=$2,250

The appropriate entries would to debit(increase) expense with $2,250 while interest payable is credited(increase) with the same amount