On December 9, A issues a 60-day promissory note to B. The December 31 adjusting entry for A is

Question

Quizplus · Accepted Answer

The adjusting entry on December 31 should record the interest expense that accrues on the promissory note during the 60-day period. The interest expense is calculated as follows:

Principal amount x Annual interest rate x Time

In this case, assuming the principal amount is $1000 and the annual interest rate is 12%, the interest expense for 60 days is:

$1000 x 12%/365 days x 60 days = $19.73

The adjusting entry should therefore debit Interest Expense for $19.73 and credit Interest Payable for the same amount to record the accrued interest. The other choices do not reflect the correct accounts that are affected by the promissory note transaction.

On December 9, a Issues a 60-Day Promissory Note to B