On October 1,2018,Highview Company borrows $360,000 on a three-year note that requires the company to pay 6% interest on March 31 and September 30.On December 31,2018,the adjusting entry to accrue interest on the note should debit:
A)Interest Expense and credit Interest Payable for $5,400.
B)Interest Payable and credit Interest Expense for $5,400.
C)Interest Expense and credit Cash for $10,800.
D)Interest Expense and credit Interest Payable for $10,800.

Question

Quizplus · Accepted Answer

The adjusting entry includes a debit to Interest Expense and a credit to Interest Payable for $5,400 [or Principal of $360,000 × Interest rate of 6% × Time of 3 / 12 (October 1 through December 31)].

On October 1,2018,Highview Company Borrows $360,000 on a Three-Year Note