Question

ABC Christmas shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on October 1 in the amount of $20,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest

Answer 1

Answer: See explanation

Step-by-step explanation:

To know the the adjusting entry to be made on December 31 for the interest expense accrued to that date, we have to calculate the interest expense for the three months and this will be:

= $20000 × 6% × 3/12

= $20000 × 0.06 × 0.25

= $300

Therefore, the adjusting entry to be made on December 31 for the interest expense accrued to that date will be:

Debit: Interest expenses $300

Credit: Interest Payable $300