Final answer:
To record the adjusting journal entry for the interest incurred by Luna Sea Sushi, Inc. on its note, calculate the accrued interest for 5 months and then debit the Interest Expense and credit the Interest Payable for the calculated amount of $3,750.
Step-by-step explanation:
The student is asking how to record an adjusting journal entry for the interest incurred and owed on a note issued by Luna Sea Sushi, Inc. First, we need to calculate the amount of interest that has accrued on the note from August 1 to December 31 of Year 1, which is a period of 5 months.
To calculate the interest incurred: Interest = Principal x Rate x Time = $100,000 x 9% x (5/12) = $3,750.
The correct adjusting journal entry to record the interest owed as of December 31, Year 1, would be:
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- Debit: Interest Expense $3,750
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- Credit: Interest Payable $3,750
This entry records the interest expense incurred during the period and the associated liability since the interest has not yet been paid.