Smith borrowed $21,000 on a one year Note payable with an interest rate of 10% per year on June 1. He will repay the principal and interest at the end of the one-year period. Smith makes accrual adjustments at the end of each month. He should record interest expense of $2,100 on June 30.

Question

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Smith should record interest expense for one month, not the entire year. The interest for one month is $175 ($21,000 * 10% / 12).

Smith Borrowed $21,000 on a One Year Note Payable with an Interest