On December 31, 2010, interest of $500 is owed on a bank loan that will not be paid until June 30, 2011. What is the necessary adjusting journal entry on December 31, 2010?

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The adjusting journal entry is necessary to recognize and accrue the interest expense for the period from December 31, 2010 to June 30, 2011. Option B correctly records an increase in interest expense and an increase in interest payable, which is the liability account to be paid in June 30, 2011. Option A is incorrect because it records the interest expense twice, in December and again in June. Option C is incorrect because it only records the interest payable liability and not the corresponding expense. Option D is incorrect because it records the interest expense in the wrong account, "Interest Receivable" instead of "Interest Payable".

On December 31, 2010, Interest of $500 Is Owed on a Bank