Question

The Coffee Cup Company had a credit balance of $500 in interest payable at the beginning of the period, and a credit balance of $600 at the end of the period. Based on this information, the adjustment to net income for the period will be reported as:

Answer 1

Answer:

The adjustment to net income for the period will be reported as:

Debit Interest expense ($600 - $500)                 $100

Credit Interest payable                                          $100

(Being interest expense for the period)

Explanation:

Interest payable is the accumulation of the interest expense in the balance sheet overa specific period of time agreed with the creditor. When it becomes payable, the interest payable account is debited while cash is credited.

The interest payable in the Coffee Cup Company's account increased from $500 (credit balance) to $600 credit balance. This means there would have been an additional $100 interest expense recorded during the period in order to increase it to $600.