On 1 November, Year 1, Noble Co. borrowed $80,000 from South Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately.

-At 31 December, Year 1, the adjusting entry with respect to this note includes a:

Question

On 1 November,  Year 1, Noble Co. borrowed $80,000 from South Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately.

-At 31 December, Year 1, the adjusting entry with respect to this note includes a:

Quizplus · Accepted Answer

The adjusting entry with respect to this note at 31 December, Year 1, would include a credit to Interest Payable for $1,600, representing the accrued interest for the period. This is because interest expense is recognized over time, as it is earned by the creditor for lending the money, and the adjusting entry recognizes the portion of interest expense that has accrued but not yet been paid. Therefore, choice A is the best choice. The other options are incorrect because they either do not recognize the accrued interest or record an amount of cash that is not related to the adjusting entry.