Cupling Enterprises borrowed $6,000 from Escada Bank on October 1,2012.At that time,the company made the appropriate journal entry; however,no other journal entry pertaining to the note has been made.Given that the bank is charging interest at a rate of 9%,what adjusting entry is necessary as of Cupling Enterprise's year-end date of December 31,2012?

A)$\begin{array} { l l l }
\text { Interest expense } & 135 & \
\quad\text { Accrued interest payable } & & 135 \
\end{array}$

B) $\begin{array}{lccc}
\text { Interest expense } & 135 & \
\quad \text { Notes payable } & & 135 \
\end{array}$

C) $\begin{array}{lccc}
\text { Interest expense} & 540 & \
\quad \text { Accrued interest payable } & & 540 \
\end{array}$

D)$\begin{array}{lccc}
\text { Interest expense } & 540 & \
\quad\text { Notes payable} & & 540 \
\end{array}$

E)$\begin{array}{lccc}
\text { Notes payable } & 540& \
\quad \text { Interest expense } & & 540
\end{array}$

Question

Cupling Enterprises borrowed $6,000 from Escada Bank on October 1,2012.At that time,the company made the appropriate journal entry; however,no other journal entry pertaining to the note has been made.Given that the bank is charging interest at a rate of 9%,what adjusting entry is necessary as of Cupling Enterprise's year-end date of December 31,2012?

A)$\begin{array} { l l l } 
\text {  Interest expense } & 135 & \
\quad\text { Accrued interest payable } & & 135 \
\end{array}$

B) $\begin{array}{lccc}
\text { Interest expense } & 135 & \
\quad \text { Notes payable } & & 135 \
\end{array}$

C) $\begin{array}{lccc}
\text { Interest expense} & 540 & \
\quad \text { Accrued interest payable } & & 540 \
\end{array}$

D)$\begin{array}{lccc}
\text {  Interest expense } & 540 & \
\quad\text { Notes payable} & & 540 \
\end{array}$

E)$\begin{array}{lccc}
\text {  Notes payable } & 540& \
\quad \text { Interest expense } & & 540
\end{array}$

Quizplus · Accepted Answer

The adjusting entry needed would be to recognize the accrued interest expense and the corresponding liability that has accumulated since October 1, 2012. The interest expense would be calculated using the formula: $6,000 x 9% x (3/12) = $135. Therefore, the correct journal entry would be to debit interest expense for $135 and credit accrued interest payable for $135. Option A is the only one that includes this correct adjusting entry.