Question

Goodman Company borrowed $100,000 cash on September 1, 2014, and signed a one-year 12%, interest-bearing note payable. The required adjusting entry at the end of the accounting period, December 31, 2014, would be A) Interest expense 4,000 Interest payable 4,000 B) Interest expense 12,000 Interest payable 12,000 C) Notes payable 100,000 Interest expense 12,000 Cash 112,000 D) Interest payable 4,000 Interest expense 4,000

Answer 1

The required adjusting entry at the end of the accounting period is : A) Interest expense 4,000 Interest payable 4,000

Step-by-step explanation:

Interest is Accrued from September 1 ,2004 to December 31, 2014 in the 2014 accounting period. Thus we a period of over 4 months out of the 12 months in a year.

Considering the Matching or Accrual Principle Interest will only be considered for these 4 months only (Revenues and Expenses must be recorded in the period in which they Accrue or Incur)

Calculation of the Interest expense and the Interest Payable is :

=$100,000 × 12% × 4/12

=$ 4,000