On 1 November, Metro Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. The 30 November adjusting entry will be: (assume 360 days in year)

Question

Quizplus · Accepted Answer

Since the note has a 90-day term and was signed on November 1st, it will mature on January 31st (90 days after November 1st). As of November 30th (30 days after November 1st), one month of interest has accrued (1/3 of the total term).

To record the 30 November adjusting entry, interest expense of $550 ($55,000 x 12% x 1/12) should be recognized for the one month of accrued interest. This should be debited to the Interest Expense account.

At the same time, an equal credit of $550 should be made to the Interest Payable account, which represents the interest that has accrued but has not yet been paid.

Therefore, the correct answer is B, Debit Interest Expense $550 and credit Interest Payable $550.

On 1 November, Metro Corporation Borrowed $55,000 from a Bank