Final answer:
To find the adjusting entry for accrued interest on Carter Company's note, the interest from November 1 to December 31 needs to be calculated. The interest for 60 days is found using the formula: Principal × Rate × Time, which amounts to $150. Thus, the correct adjusting entry is to debit interest expense and credit interest payable by $150. Option c is the correct answer.
Step-by-step explanation:
To determine the adjusting entry for the accrued interest on Carter Company's note at December 31, we first need to calculate the amount of interest that has accrued from November 1 to December 31. Since this is a 120-day note and 60 days have passed by December 31, we will calculate the interest for 60 days.
The annual interest rate is 10%, and the face value of the note is $9,000. The formula for calculating the interest for a specific period is: Interest = Principal × Rate × Time. In this case, Time is 60/360 because the common business practice is to treat all months as having 30 days for interest calculations, making the year 360 days for such calculations.
Interest = $9,000 × 10% × (60/360) = $9,000 × 0.10 × (1/6) = $150.
Therefore, the adjusting entry at December 31 for the accrued interest on the note should be to debit interest expense for $150 and credit interest payable for $150.
The correct option answer is c. Debit interest expense, $150; credit interest payable $150.