On November 1,Alan Company signed a 120-day,8% note payable,with a face value of $9,000.What is the adjusting entry for the accrued interest at December 31 on the note? (Use 360 days a year.)
A)No adjusting entry is required.
B)Debit Interest Payable,$120; credit Interest Expense,$120.
C)Debit Interest Expense,$120; credit Interest Payable,$120.
D)Debit Interest Expense,$720; credit Interest Payable,$720.
E)Debit Interest Payable,$240; credit Interest Expense,$240.

Question

Quizplus · Accepted Answer

To calculate the accrued interest, we’ll use the following formula:
Accrued Interest = Face Value x Interest Rate x Time
Accrued Interest = $9,000 x 0.08 x (61/360)
Accrued Interest = $120.00
Since the note was issued on November 1 and the interest is accrued until December 31, which is 61 days after the note was issued (November has 30 days and December has 31 days), the accrued interest is $120.
Therefore, the adjusting entry for the accrued interest at December 31 on the note is to debit Interest Expense $120 and credit Interest Payable $120.

On November 1,Alan Company Signed a 120-Day,8% Note Payable,with a Face