Answer:
Debit Interest Expense - $ 3,261.37
Credit Interest payable - $ 3,261.37
Explanation:
Amount borrowed by the company - $ 480,000
Annual Interest rate - 8 %
Accrued interest at the end of year i.e. December 31 - ?
Consider one year = 365 days
Annual Interest rate = 8 %
Interest rate per day= 8% / 365 = 0.0002192 %
Per day Interest amount = Interest rate per day x Principal amount
Per day Interest amount = .0002192 x $ 480,000
Per day Interest amount = $ 105.2055
Total days from 1st December to 31st December (Both dates Inclusive) = 31
Interest amount for 31 days = 31 days x Per day interest amount
Interest amount for 31 days = $ 3,261.37.
Thus Adjusting entry for accrued interest ;
Account Head Dr Cr
Interest Expense $ 3,261.37
Interest Payable $ 3,261.37
