Question

Tate Company purchased equipment on November 1, 2020 and gave a 3-month, 9% note with a face value of $80,000. The December 31, 2020 adjusting entry is A. debit Interest Expense and credit Interest Payable, $1,800. B. debit Interest Expense and credit Interest Payable, $7,200. C. debit Interest Expense and credit Cash, $1,200. D. debit Interest Expense and credit Interest Payable, $1,200.

Answer 1

D. debit Interest Expense and credit Interest Payable, $1,200.

Step-by-step explanation:

The principle amount of note payable = $80000

Rate of interest = 9%

The time period for which the interest paid = 2 months

Now find the interest amount that is payable.

Total interest amount for the two months = $80000 × 9%× 2/12 = 1200

Therefore, the interest expense of $1200 will be debited and credit with same amount as interest payable.

Thus option “D” is correct.