Martin & Associates borrowed $15,000 on April 1, 2016 at 8% interest with both principal and interest due on March 31, 2017.Which of the following journal entries should the firm use to accrue interest at the end of each month?

Question

Quizplus · Accepted Answer

Option C is the correct choice as it correctly accrues monthly interest by multiplying the principal amount by the monthly interest rate (8%/12) and recording it as an expense. The interest expense is then credited to the interest payable account. This is done at the end of each month to match the accrual accounting concept, which recognizes expenses when they are incurred, regardless of when they are paid. The other options either do not accrue interest correctly or do not match the accounting principle of accrual accounting.

Martin & Associates Borrowed $15,000 on April 1, 2016 at 8