A company borrowed $100,000 at 6% interest on September 1, 2014. Assuming adjusting entries have not been made during the year, the entry to record interest accrued on December 31, 2014 would include a debit to interest expense and a credit to interest payable for $2,000.

Question

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Interest accrued from September 1 to December 31 would be 4 months (120 days). Using the formula (Principal x Rate x Time), the interest accrued would be $100,000 x 6% x (120/365) = $1,972.60, which would be rounded up to $2,000. Therefore, the entry would be a debit to interest expense for $2,000 and a credit to interest payable for $2,000.

A Company Borrowed $100,000 at 6% Interest on September 1