At the end of the year,a company makes a journal entry to accrue the interest expense on a short-term note payable.As a result of this transaction:
A)current liabilities increase and current assets increase.
B)current liabilities increase and stockholders' equity increases.
C)current liabilities decrease and stockholders' equity decreases.
D)current liabilities increase and stockholders' equity decreases.

Question

Quizplus · Accepted Answer

Accruing interest expense on a short-term note payable means that the company owes interest on the note but has not yet paid it. This creates an increase in the current liability of the company, as it now owes more money. However, it also decreases the stockholders' equity by the same amount, as the interest expense is a cost that reduces the overall value of the company. Therefore, the correct choice is D - current liabilities increase and stockholders' equity decreases.

At the End of the Year,a Company Makes a Journal