Question

wildhorse co. borrows $21600 at 5% annual interest for six months on october 1st, 2017. which is the appropriate entry to accrue interest if baden employs a december 31st, 2017, fiscal year? select answer from the options below a) interest expense $270 interest payable $270 b) notes payable $1080 interest payable $1080 c) interest expense $270 notes payable $270 d) interest expense $1080 interest payable $1080

Answer 1

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.