Raxon Company borrowed $50000 from the bank signing a 6% 3-month note on September 1.Principal and interest are payable to the bank on December 1.If the company prepares monthly financial statements the adjustment that the company should make for interest on September 30 would be:

Question

Quizplus · Accepted Answer

To calculate the interest for the month of September, we need to find out how many days are between September 1st and September 30th.

September has 30 days, so the interest will be calculated on a 30-day basis using the following formula:

Interest = Principal x Rate x Time 
Time = 30/360 (assuming a 360-day year)

Interest = $50,000 x 0.06 x (30/360) = $250

Therefore, the company should make the adjusting entry to increase Interest Expense and Interest Payable each by $250.

Raxon Company Borrowed $50000 from the Bank Signing a 6