On October 1,Lawrence Company borrowed $60,000 from Fourth National Bank on a one-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 end of the fiscal year, hence it is recorded as interest payable.

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