The appropriate entry to accrue interest if Baden employs a December 31st, 2017, fiscal year would be:
d) Interest expense $1080
Interest payable $1080
Since the loan was taken for six months at a 5% annual interest rate, the interest expense can be calculated as follows:
Interest expense = Principal amount * Interest rate * Time
= $21600 * 0.05 * (3/12) [As it is only for three months from October 1st to December 31st]
= $1080
The interest expense is debited to recognize the expense incurred, and the interest payable is credited to reflect the amount owed to the lender.