Moss County Bank agrees to lend the Sadowski Brick Company $500000 on January 1.Sadowski Brick Company signs a $500000 6% 9-month note.The adjustment required if Sadowski Brick Company prepares financial statements on June 30 includes a(n)

Question

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The interest expense for 6 months would be calculated as follows:
Interest = ($500,000 × 6% × 6/12) = $15,000
At the end of June 30, Sadowski Brick Company would have accrued interest expense of $15,000 (which is an increase to Interest Expense) but would not have yet paid it (which is an increase to Interest Payable). Therefore, the adjustment required if Sadowski Brick Company prepares financial statements on June 30 would be an Increase to Interest Expense and to Interest Payable for $15,000 (choice A).

Moss County Bank Agrees to Lend the Sadowski Brick Company