On October 1,2018,you borrow $200,000 at 6% interest and record the promissory note.In April and again in October of the following year,you are required to pay half the annual interest to your creditors.On December 31,2018,your journal entry for the quarter should:
A)debit Interest Expense for $3,000 and credit Interest Payable for $3,000.
B)debit Cash for $3,000 and credit Accrued Interest for $3,000.
C)debit Interest Expense for $6,000 and credit Cash for $6,000.
D)debit Interest Expense for $6,000 and credit Notes Payable for $6,000.

Question

Quizplus · Accepted Answer

Three months of interest (October 1-December 31)should be accrued at December 31.A debit (increase)to Interest Expense and a credit (increase)to Interest Payable would be the accrual adjustment.
200,000 * 6 * 3/12 = 3,000.

On October 1,2018,you Borrow $200,000 at 6% Interest and Record