On September 1, Joe's Painting Service borrows $100,000 from National Bank on a 4-month, $100,000, 6% note.What entry must Joe's Painting Service make on December 31 before financial statements are prepared?

Question

Quizplus · Accepted Answer

Joe's Painting Service needs to make an adjusting entry on December 31 to accrue the interest expense for the four months the note was outstanding. The formula to calculate interest expense is principal x rate x time, or $100,000 x 6% x 4/12 = $2,000. Therefore, Joe's Painting Service should debit Interest Expense for $2,000 and credit Interest Payable for $2,000 on December 31 before financial statements are prepared. Choice C matches this entry.

On September 1, Joe's Painting Service Borrows $100,000 from National