Vera Company, which prepares monthly financial statements, acquired a new forklift in exchange for signing a 6-month, 10%, $20,000 note dated May 1, 2018. Vera agreed to repay the entire principal at the end of the 6-month period. Vera should:

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Vera should accrue one month of interest expense at May 31, 2018. This is because the note was signed on May 1 and the interest expense accrues each month until the note is fully paid off at the end of the 6-month period. Therefore, Vera should record one month of interest expense as an accrual at the end of May with a corresponding interest payable liability. Option A is incorrect because the forklift has already been received, therefore, running as intended or not does not affect the timing of interest expense recognition. Option B is incorrect because the interest expense should be accrued and recognized each month, not all at once when paid. Option D is incorrect because prepaid interest is recorded when payment is made before the actual period of time covered by the interest payment. In this case, the interest payment should correspond to the actual time period in which the interest expense was incurred. Therefore, prepaid interest is not appropriate.

Vera Company, Which Prepares Monthly Financial Statements, Acquired a New