Three months before its year-end, a company signed a $250,000, 12%, 8-month note. Principal and interest will be paid at maturity. No interest should be accrued at year-end because the company has no obligation to pay the interest until the note matures.

Question

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Interest expense should be accrued for the time period the note has been outstanding during the fiscal year, even if the payment is not due until after year-end, to match expenses with revenues they help generate (accrual basis accounting).

Three Months Before Its Year-End, a Company Signed a $250,000