On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-year, 7% note. If the company's fiscal year ends as of December 31, Lawrence should make an entry to increase
A) interest payable, $1,050.
B) prepaid interest, $3,150.
C) notes payable, $1,050.
D) interest expense, $4,200.

Question

Quizplus · Accepted Answer

Interest payable should be increased by $1,050, which is the interest accrued from October 1 to December 31 (3 months) on the $60,000 note at a 7% annual rate.

On October 1, Lawrence Company Borrowed $60,000 from Fourth National