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) Debit Interest Payable, $240; credit Interest Expense, $240.
B) Debit Interest Expense, $720; credit Interest Payable, $720.
C) Debit Interest Expense, $120; credit Interest Payable, $120.
D) Debit interest payable, $120; credit interest expense, $120.
E) No adjusting entry is required.

Question

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) Debit Interest Payable, $240; credit Interest Expense, $240.
B) Debit Interest Expense, $720; credit Interest Payable, $720.
C) Debit Interest Expense, $120; credit Interest Payable, $120.
D) Debit interest payable, $120; credit interest expense, $120.
E) No adjusting entry is required.

Quizplus · Accepted Answer

The interest for 60 days (from November 1 to December 31) is calculated as $9,000 * 8% * (60/360) = $120. Therefore, the adjusting entry is to debit Interest Expense and credit Interest Payable for $120.

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