On July 1,2012,Slowinski Company borrows $100,000 on a 10% note due to a bank in one year.The accounts of Slowinski Company are affected by the adjusting entry at December 31,2012 in which of the following ways?
A) increase assets and decrease expenses
B) increase assets and increase liabilities
C) increase expenses and increase liabilities
D) increase expenses and increase stockholders' equity

Question

Quizplus · Accepted Answer

The adjusting entry at December 31, 2012 will increase the interest expense of Slowinski Company for the 6 months the note was outstanding (July 1 to December 31). This will increase expenses, but since the note is not due until the following year, it does not increase liabilities. Therefore, the correct answer is C, which is to increase expenses and increase liabilities (the note payable will be due within the next year, so it is considered a current liability).

On July 1,2012,Slowinski Company Borrows $100,000 on a 10% Note