On December 1, Flint Company purchased $30,000 of equipment by issuing a 4-month, 10% note payable to Bank of Maryland. Assuming the company's accounting period ends on December 31, the entry recorded by Flint Company on the note maturity date will include:

Question

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The interest for a 4-month period on a $30,000 note at 10% annual interest rate is calculated as follows: $30,000 * 10% * (4/12) = $1,000. Since the accounting period ends on December 31 and the note was issued on December 1, only one month of interest, or $250 ($30,000 * 10% * (1/12)), would be recognized in the current period. The remaining $750 of interest ($1,000 total interest - $250 recognized in the current period) would be recognized in the following period when the note matures. Therefore, an increase to Interest Expense for $750 is correct, as it reflects the additional interest expense recognized at the note's maturity.

On December 1, Flint Company Purchased $30,000 of Equipment by Issuing