On August 1 of the current year,Kyle Company borrowed $278,000 from the local bank.The loan was for 12 months at 9 percent interest payable at the maturity date.The adjusting entry at the end of the fiscal year relating to this obligation would include a
A) debit to interest expense of $25,020.
B) debit to interest expense of $10,425.
C) credit to note payable of $10,425.
D) debit to interest receivable of $10,425.

Question

Quizplus · Accepted Answer

The adjusting entry at the end of the fiscal year will be made to record the interest expense that has accrued over the year.

Calculation for interest expense:

Principal amount = $278,000 
Interest rate = 9% 
Time period = 12 months

Interest expense = Principal x Rate x Time 
= $278,000 x 0.09 x (12/12) 
= $25,020

Therefore, the adjusting entry at the end of the fiscal year would be:

Debit: Interest expense $10,425 
Credit: Interest payable $10,425

Option B is the correct choice as it represents the amount of interest expense that has accrued during the year. The other options are not correct because they do not reflect the appropriate accounts that need to be debited or credited for the adjusting entry.

On August 1 of the Current Year,Kyle Company Borrowed $278,000