On October 1, 2011, Pennington Company issued a €40,000, 10%, nine-month interest-bearing note.If the Pennington Company is preparing financial statements at December 31, 2011, the adjusting entry for accrued interest will include a:

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The interest expense is calculated by multiplying the principal amount (€40,000) by the interest rate (10%) and by the fraction of the year that has elapsed (3/12). This results in an accrued interest of €1,000 [(€40,000 x 10% x 3/12) = €1,000]. Therefore, the adjusting entry would include a debit to Interest Expense for €1,000.

On October 1, 2011, Pennington Company Issued a €40,000, 10