On October 1, Sam's Painting Service borrows $100,000 from National Bank on a 3-month, $100,000, 4% note. What entry must Sam's Painting Service make on December 31 before financial statements are prepared?
A) Interest Payable 1,000 Interest Expense 1,000
B) Interest Expense 4,000 Interest Payable 4,000
C) Interest Expense 1,000 Interest Payable 1,000
D) Interest Expense 1,000 Notes Payable 1,000

Question

Quizplus · Accepted Answer

The interest for 3 months is calculated as $100,000 * 4% * (3/12) = $1,000. Therefore, the entry should record $1,000 as both Interest Expense and Interest Payable.

On October 1, Sam's Painting Service Borrows $100,000 from National