Question

On October 1, Willette Company borrowed $120,000 cash and issued a six-month, 10% promissory note. Interest is payable at maturity. Willette has a calendar year-end and has not yet accrued any interest on the note. Prepare the appropriate adjusting entry dated December 31.

Answer 1

Cash borrowed = $120,000

Interest on promissory note = 10%

The journal entry is as follows:

On December 31,

Interest expense A/c Dr. $3,000.00

To Interest payable $3,000.00

(To record interest accrued on note)

Working notes:

Interest expense:

= $120,000 × 10% × (3/12)

= $120,000 × 0.1 × (1/4)

= $3,000