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 expense, $4,200.
B) notes payable, $1,050.
C) interest payable, $1,050.
D) prepaid interest, $3,150.

Question

Quizplus · Accepted Answer

Interest for three months (October to December) is calculated as $60,000 * 7% * (3/12) = $1,050. This amount represents the interest expense incurred but not yet paid by the year-end, thus increasing interest payable.

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