On November 1,2015,ABC Corp.borrowed $100,000 cash on a 1year,6% note payable that requires ABC to pay both principal and interest on October 31,2016.Given no prior adjusting entries have been recorded,the adjusting journal entry on December 31,2015,ABC's year end,would include a:
A) credit to Cash of $1,000.
B) debit to Interest Expense of $6,000.
C) credit to Interest Payable of $1,000.
D) credit to Note Payable of $1,000.

Question

Quizplus · Accepted Answer

The adjusting entry on December 31, 2015, would include a credit to Interest Payable of $1,000 to recognize the interest accrued for two months (November and December) on the note payable. The interest for two months is calculated as $100,000 * 6% * (2/12) = $1,000.