Question

Holiday Gifts signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $75600 with annual interest of 9%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?

Answer 1

Answer:

Explanation:

The adjusting entry for interest expense is shown below:

Interest expense A/c Dr $1,134

      To interest payable               $1,134

(Being interest expense is adjusted)

The interest expense is computed by

= Note payable amount × interest rate × (number of months in a year ÷ total number of months in a year)

= $75,600 × 9% × (2 months ÷ 12 months)

= $1,134

The two months is computed from the November 1 to December 31