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Mars Company signed a six-month note payable for $20,000 on December 1, 2010 with an interest rate of 6%.The first payment of $3,391.91 is due on January 1, 2011.
-What would the journal entry for December 31, 2010 be?
A)dr.interest expense $100, dr.note payable $ 3,291.91, cr.Cash $ 3,391.91
B)dr.interest expense $600, dr.note payable $ 2,791.91, cr.Cash $ 3,391,91
C)dr.interest expense $100, cr.Interest payable $ 100
D)dr.interest expense $600, cr.Interest payable $ 600

Question

Use the following information to answer questions 
Mars Company signed a six-month note payable for $20,000 on December 1, 2010 with an interest rate of 6%.The first payment of $3,391.91 is due on January 1, 2011.
-What would the journal entry for December 31, 2010 be?
A)dr.interest expense $100, dr.note payable $ 3,291.91, cr.Cash $ 3,391.91
B)dr.interest expense $600, dr.note payable $ 2,791.91, cr.Cash $ 3,391,91
C)dr.interest expense $100, cr.Interest payable $ 100
D)dr.interest expense $600, cr.Interest payable $ 600

Quizplus · Accepted Answer

Interest for one month (December) is calculated as $20,000 * 6% * (1/12) = $100. This amount represents the interest expense for December, which has not yet been paid and is therefore accrued as interest payable.

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