On October 1,2009,you borrow $200,000 at 6% interest and record the promissory note.In April and again in October of the following year,you are required to pay half the annual interest to your creditors.On December 31,2009,your journal entry for the quarter should:

Question

Quizplus · Accepted Answer

The interest on the loan for 3 months (Oct-Dec) is $3,000 ($200,000 x 6% x 3/12). Since only half of the annual interest is paid in April and October, the remaining half is accrued as interest payable. Therefore, the journal entry on December 31, 2009, should involve debiting the Interest Expense account for the accrued interest of $3,000 and crediting the Interest Payable account for the same amount ($3,000).

On October 1,2009,you Borrow $200,000 at 6% Interest and Record