On July 1, 20X1, Liz Company borrowed $5,000 cash and signed a one year note payable, interest 10 percent, payable on the maturity date, June 30, 20X2. The accounting period ends on December 31; therefore, the required adjusting entry on December 31, 20X1 would be: Debit--Interest payable, $250; Credit--Interest expense, $250.

Question

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The correct adjusting entry should be Debit--Interest Expense, $250; Credit--Interest Payable, $250.

On July 1, 20X1, Liz Company Borrowed $5,000 Cash and Signed