Question

River Ridge Music School borrowed $30,000 from the bank signing a 6%, 6-month note on November 1. Principal and interest are payable to the bank on May 1. If the company prepares monthly financial statements, what adjusting entry should the company make at November 30 with regard to the note (round answer to the nearest dollar)?

Answer 1

Answer:

Debit interest expense and credit interest payable by $150

Explanation:

Given:

Amount borrowed = $30,000

Interest rate = 6%

Maturity = 6 months

If the company prepares monthly financial statements, then interest incurred in the month of November:

Interest expense = $30,000\times0.06\times\frac{1}{12}$

                             = $150

Adjusting entry passed:

Date                          Particulars                        Debit($)                Credit($)

30th Nov                  Interest expense                150

                                          Interest payable                                      150

                                 (Being interest expense

                                  accrued)