On November 1,2018,Sky Mountain Co.borrowed $200,000 cash on a 1-year note payable with a 6% annual rate that requires Sky Mountain to pay all the interest as well as the principal on October 31,2019.Assuming the November 1 transaction was properly recorded,how would the December 31,2018,year-end adjusting entry affect the accounting equation?

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Quizplus · Accepted Answer

Since interest has accrued but has not yet been paid,Interest Payable,a liability,must also be increased.In addition,Interest Expense must be increased,which will decrease net income and stockholders' equity.