On August 1, Year 1 Gomez Company borrowed $48,000 cash. The one-year note carried a 5%...
On August 1, Year 1 Gomez Company borrowed $48,000 cash. The one-year note carried a 5% rate of interest. Which of the following shows how the December 31, Year 1 recognition of accrued interest will effect Gomez’s ledger accounts?
A) Interest payable (2400), Retained earnings (2400)
B) Cash (2400), Retained earnings (2400)
C) Interest payable (1400), Retained earnings (1400)
D) Interest payable +1000, Retained earnings (1000)
Homework Answers
Interest expense = 48000*5%*5/12 = 1000
Interest expense effect retained earning decrease = -1000
Interest payable increase = 1000
So answer is d) Interest payable +1000, Retained earnings (1000)
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