Nacron Company borrowed $15000 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 expense for the month of September, we need to use the formula:

Interest Expense = Principal x Rate x Time

In this case, the principal is $15,000, the rate is 6% per year (or 0.5% per month), and the time is one month (from September 1 to September 30).

So, the interest expense for the month of September is:

Interest Expense = $15,000 x 0.5% x 1 = $75

Since the interest is not paid until December 1, we need to record it as interest payable as of September 30.

Therefore, the adjustment that the company should make for interest on September 30 would be:

Increase Interest Expense $75; Increase Interest Payable $75.

Option A is the correct answer.

Nacron Company Borrowed $15000 from the Bank Signing a 6