Question

1. Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1. Sadowski Brick Company signs a $500,000, 6%, 9-month note. What is the adjusting entry required if Sadowski Brick Company prepares financial statements on June 30

Answer 1

Answer:

Debit interest expenses for $15,000

Credit interest payable for $15,000

Explanation:

Since January 1 to June 30 is 6 months, we need to calculate interest expenses for the 6 months as follows:

Monthly interest expenses = ($500,000 * 6%) / 12 = $2,500

Interest expenses for 6 months = $2,500 * 6 = $15,000

The adjusting entry required will therefore look as follws:

Date            Particulars                              Dr ($)                 Cr ($)        

June 30      Interest expenses                 15,000

                   Interest payable                                               15,000

                   (To record 6 months interest payable on note.)