On January 1, Bloomingdale, Inc. borrows $92,000 from First Estate Bank. The loan is due in one year along with 4% interest. The company is preparing its quarterly report for March 31. Which of the following best describes the necessary accrual for interest expense?
A) $ 920 increase liabilities, increase expenses
B) $3,680 decrease liabilities, decrease cash
C) $3 680 increase expenses, decrease cash
D) $3,680 increase liabilities, decrease expenses
E) $ 920 decrease liabilities, decrease cash

Question

Quizplus · Accepted Answer

Interest for three months (January to March) on a $92,000 loan at 4% annual interest is $920 ($92,000 * 4% / 12 * 3). This accrual increases liabilities (interest payable) and increases expenses (interest expense).