A company borrowed $100,000 at 6% interest on September 1, 2016. Assuming adjusting entries have not been made during the year, the entry to record interest accrued on December 31, 2016 would include a debit to interest expense and a credit to interest payable for $2,000.

Question

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Since the company borrowed $100,000 at 6% interest, the annual interest expense would be $6,000. As of December 31, 2016, the company would have incurred 4 months of interest ($6,000/12 months = $500 per month x 4 months = $2,000). Therefore, the adjusting entry would include a debit to interest expense and a credit to interest payable for $2,000.

A Company Borrowed $100,000 at 6% Interest on September 1