On September 1, Piano Keys Corp.borrowed $30,000 from their bank, and signed a 5%, 3-month bank loan.Principal and interest are due on December 1.If Piano Keys prepares monthly financial statements, the adjusting entry that it should prepare for interest on September 30 would be
A)debit Interest Expense, $125; credit Interest Payable, $125.
B)debit Interest Expense, $1,500; credit Interest Payable, $1,500.
C)debit Bank Loan Payable, $375; credit Cash, $375.
D)debit Cash, $30,000; credit Bank Loan Payable, $30,000.

Question

Quizplus · Accepted Answer

The interest for one month on a $30,000 loan at 5% annual interest is calculated as ($30,000 * 0.05) / 12 = $125. This amount represents the interest expense for September, which needs to be recognized in the financial statements for that month.