On November 1, 2015 , ABC Corp borrowed $100,000 cash on a 1 year, 6% note...
On November 1, 2015 , ABC Corp borrowed $100,000 cash on a 1
year,
6% note payable that requires ABC to pay both principal
and interest on October 31,2016. Given no prior adjusting entries
have been recorded, the adjusting journal entry on December 31,
2015, ABC's year end, would include a
A. credit to Cash of $1,000
B. credit to Interest Payable of $1,000
C. credit to Note Payable of $1,000
D. debit to Interest Expense of $6,000
Homework Answers
Answer is B. Credit to Notes Payable of $1,000
Calculations:
Interest accrued from Nov. 1,2015 to Dec.31,2015 = $100,000 x 6% x (2 months/12 months)
= $6,000 x (2/12)
= $1,000
Journal Entry:
| Date | Account title and explanation | Debit | Credit |
| Dec.31 | Interest expense | $1,000 | |
| Interest payable | $1,000 | ||
| [To record accrued interest] |
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