On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the adjusting entry for the accrued interest at December 31, the company's year end, on the note?
A)Debit interest expense, $0; credit interest payable, $0.
B)Debit interest payable, $120; credit interest expense, $120.
C)Debit interest expense, $120; credit interest payable, $120.
D)Debit interest expense, $720; credit interest payable, $720.
E)Debit interest payable, $240; credit interest expense, $240.

Question

Quizplus · Accepted Answer

The adjusting entry for accrued interest on a note payable is to debit interest expense and credit interest payable.

To calculate the accrued interest for two months (November and December), we need to use the following calculation:

$9,000 x 8% x 2/12 = $120

Therefore, the entry would be:

Debit interest expense $120

Credit interest payable $120

On November 1, Alan Company Signed a 120-Day, 8% Note