Question

On december 1, hansen co. Borrowed $100,000 cash from national bank by signing a 90-day, 6% interest-bearing note. On december 31, hansen recorded an adjusting entry to record interest expense of $500. On march 1, the due date of the note, hansen will record interest expense as a (debit/credit) ________ in the amount of.

Answer 1

On March 1, the due date of the note, Hansen will record interest expense as a  debit in the amount of $600.

Interest expense is the cost associated with borrowing money in the form of loans, bonds, and lines of credit. It is the amount paid to lenders for the use of their money and is typically reported as a line item on an income statement.

On March 1, Hansen will record interest expense as a debit in the amount of $600 ($100,000 x 6% x 90/360). The adjusting entry on December 31 was to record the interest accrued on the note between December 1 and December 31 ($100,000 x 6% x 30/360 = $500). Therefore, the interest payable on March 1 is the amount of the loan times the interest rate times the number of days outstanding ($100,000 x 6% x 90/360 = $600).

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