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 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 note has a 120-day term and was signed on November 1, so it will mature on February 28 (120 days after November 1). As of December 31, which is 61 days after the note was signed and 59 days before it matures, the company has incurred 59/120 of the total interest expense. This can be calculated as:
$9,000 × 8% × 59/360 = $118
Since the interest has been earned but not yet paid, the adjusting entry is to debit interest expense for $118 and credit interest payable for $118. Therefore, the correct answer is choice C.

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