Preston Corporation issues a $3,000 note to Fulton Corporation on March 1,which carries interest at an annual rate of 5%.Interest is payable when the note matures on June 30.What entry will Fulton make at its year-end,April 30,if interest on the note has not previously been accrued?

Question

Quizplus · Accepted Answer

Fulton Corporation uses accrual basis accounting, which requires that revenue be recognized when earned and expenses be recognized when incurred. Since interest has accrued on the note between March 1 and April 30 (the end of Fulton's year), Fulton must make an adjusting entry to record the interest expense and interest payable.

Option A is incorrect because it does not record the interest expense that has accrued between March 1 and April 30.

Option C is incorrect because it does not allocate interest expense based on the number of days the note was outstanding.

Option D is incorrect because it does not record the interest expense that has accrued between March 1 and April 30.

Therefore, Option B is the best choice because it accurately records the interest expense and interest payable that has accrued on the note between March 1 and April 30.

Preston Corporation Issues a $3,000 Note to Fulton Corporation on March