On September 1, Starr Guitar Corp.borrowed $24,000 from their bank, and signed a 8%, 3-month bank loan.Principal and interest are due on December 1.If Starr prepares monthly financial statements, the adjusting entry that they should prepare for interest on September 30 would be

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Since the loan is for 3 months with 8% interest, the monthly interest rate is (8%/12) = 0.67%. The interest expense for September would be (0.67% x $24,000) = $160. Therefore, the adjusting entry should be to debit Interest Expense (an income statement expense account) by $160 and credit Interest Payable (a current liability account) by $160. This entry recognizes the interest expense that Starr has incurred but has not yet paid as of September 30th.