The Edgartown Company borrowed $480,000 on December 1,2014.The note,which is due in 60 days,included interest at 8%.The company's fiscal year ends on December 31.How would the company record the adjusting entry relating to this note at December 31,2014?
A)Debit Interest Expense for $38,400 and credit Interest Payable for $38,400.
B)Debit Interest Expense for $6,400 and credit Interest Payable for $6,400.
C)Debit Interest Expense for $3,200 and credit Interest Payable for $3,200.
D)Debit Notes Payable for $483,200 and credit Cash for $483,200.
E)Debit Interest Expense for $3,200 and credit Cash for $3,200.

Question

Quizplus · Accepted Answer

The interest for one month (December) needs to be recorded. The interest for 60 days is $480,000 * 8% * (60/365) = $6,400. For one month (December), it is $480,000 * 8% * (30/365) = $3,200. Thus, the adjusting entry is to debit Interest Expense for $3,200 and credit Interest Payable for $3,200.

The Edgartown Company Borrowed $480,000 on December 1,2014