On November 1,2018,New Morning Bakery signed a $200,000,6%,six-month note payable with the amount borrowed plus accrued interest due six months later on May 1,2019.New Morning Bakery should record which of the following adjusting entries at December 31,2018?

Question

Quizplus · Accepted Answer

At December 31, 2018, two months of interest have accrued on the note ($200,000 x 6% x 2/12 = $2,000). Therefore, New Morning Bakery should debit Interest Expense (an income statement account) and credit Interest Payable (a liability account) for $2,000 to record the accrued interest expense. Option B is not correct because cash was not paid or received for interest expense, and Option C is not correct because the full amount of accrued interest will not be due until May 1, 2019.

On November 1,2018,New Morning Bakery Signed a $200,000,6%,six-Month Note Payable