On November 1,2015,ABC Corp.borrowed $100,000 cash on a 1year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31,2016.Assuming the November 1 transaction was properly recorded,how would the December 31,2015,year-end adjusting entry affect the accounting equation?
A) Liabilities decrease and stockholders' equity increases.
B) Both assets and stockholders' equity increase.
C) Liabilities increase and stockholders' equity decreases.
D) Liabilities increase and stockholders' equity increases.

Question

Quizplus · Accepted Answer

The adjusting entry would recognize the accrued interest expense, increasing liabilities (interest payable) and decreasing stockholders' equity (retained earnings) due to the expense recognition.