Question

On september 1, abc company borrowed $50,000 on a 6%, 9 month note payable to xyz national bank. given no previous adjusting entries have been recorded, abc's adjusting entry four months later at december 31 would include a:

Answer 1

To determine the answer to this, let us first determine the interest using the formula:

Interest = Principal amount * Interest rate * Number of months / 12

September to December would be 4 months, therefore:

Interest = $50,000 * 0.06 * 4/12

Interest = $1,000

Therefore the adjusting entry should be:

debit to Interest Expense of $1,000

Answer 2

Answer:

Debit Interest expense by $1,000 & Credit Interest payable by $1,000

Explanation:

The adjusting entries for the four months passed on borrowed money will be to Debit the Interest expense and Credit the Interest Payable.

The interest expense for the four months passed on bonds will be calculated as follows:

Yearly Interest expense = Value of bond x The rate = $50,000 x 6%

Yearly Interest expense = $3,000

The interest expense for 4 months = (4/12) x $3,000 = $1,000

Hence, following adjusting entry will be made for the passed 4 months on borrowed money:

Debit      Interest expense      $1,000

Credit            Interest payable            $1,000