On November 1, 2016, Brownsville Co.borrowed $80,000 from State Bank and signed a 12%, six-month note payable, all due at maturity.The interest on this loan is stated separately.At December 31, 2016, the adjusting entry for this note includes a:

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Since the note has a 12% annual interest rate, the amount of interest expense accrued from November 1 to December 31 (2 out of the 6 total months) is ($80,000 x 0.12 x 2/12) = $1,600. This means the adjusting entry should include a credit to Interest Payable for $1,600, indicating that the company owes this amount to the bank in interest for the loan. No entry is necessary for Notes Payable or Cash at this time.