Answer:
Increase liabilities and decrease equity by $2,000
Explanation:
The journal entry to record accrued interest is shown below:
Interest Expense a/c Dr. $2,000
To Interest Payable $2,000
(Being Interest accrued is recorded)
For recording this we debited the interest expense as it decreased the equity and credited the interest payable as it increased the liabilities
The computation is shown below:
= $40,000 × 12% × 5 months ÷ 12 months
= $2,000
The 5 months is taken from August 1 to December 31
