Question

On July 1, 2000, CriCo takes out a 10%, $10,000 note payable that is due on July 1, 2001. No interest is accrued at year-end 2000.

To correct this error in 2000, you need to record just the adjusting entry that was not made because.....

Answer 1

An adjusting entry would be necessary to record the interest expense that CriCo did not accrue for its $10,000 note payable at the end of 2000. The entry would include a debit to Interest Expense and a credit to Interest Payable for the amount of $500.

Step-by-step explanation:

The question pertains to an accounting error where CriCo took out a 10%, $10,000 note payable due in one year, but failed to accrue interest at the end of the year 2000. To correct this omission, an adjusting entry is required. The adjusting entry should include interest expense for the period from the date the note was issued to the end of the year 2000. ]

This interest can be calculated as follows: $10,000 principal × 10% annual interest rate × (6/12 months), since the note was taken out on July 1 and the year-end is December 31.

This would result in an interest expense of $500 ($10,000 × 10% × 0.5). The adjusting entry would consist of debiting Interest Expense for $500 and crediting Interest Payable for $500.