Question

Miranda Company borrowed $125,000 cash on September 1, 2019, and signed a one-year 5%, interest-bearing note payable. Assume no adjusting entries have been made during the year. Prepare adjusting entry at the end of the December 31, 2019 accounting period.

Answer 1

Answer:

31 Dec 2019  Interest expense      $2083.33 Dr

                         Interest Payable         $2083.33 Cr

Explanation:

The adjusting entry is made under the accrual basis of accounting that follows that a particular period's revenues and expenses should be matched and recorded in the same period. The interest expense on the note that relates to the period from September 2019 to December 2019, 4 months, should be recorded in 2019 on 31 December.

The interest expense for 4 months is = 125000 * 0.05 * 4/12 = $2083.33