Question

Discount Mart borrows $400,000 on July 1 with a short-term loan that has an annual interest rate of 6% payable on the first day of each subsequent quarter. What will Discount Mart need to accrue on September 30, assuming that no accrual had been made since the last interest payment? Select one: A. $6,000; Decrease liabilities, decrease cash B. $4,000; Increase liabilities, increase expenses C. $6,000; Increase expenses, increase liabilities D. $4,000; Increase expenses, decrease cash

Answer 1

Answer:

C. $6,000; Increase expenses, increase liabilities

Explanation:

The computation is shown below:

= Borrowed amount × rate of interest × given months ÷ Total months

= $400,000 × 6% × 3 months ÷ 12 months

= $6,000

So this $6,000 represent an increase in liabilities and increase in expenses

hence, the correct option is c.