Question

Joyce's Gift signs a three-month note payable to help finance increase in inventory for the Christmas Shopping season. The note is signed on Nov 1 in the amount of $50k with annual interest 12%. What is the adjusting entry to be made on Dec 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?

Answer 1

Answer: The answer is as follows:

Step-by-step explanation:

Joyce's Gift signs a three-month note

period expired = 2 months

Note is signed on Nov 1 in the amount of $50k with annual interest 12%

Interest =
`50000 * (12)/(100) * (2)/(12)`

= $1000

Therefore, the Journal entry for this adjustment is as follows:

Interest Expense A/C 1000

To Interest Payable A/C 1000

(adjusting entry to be made on Dec 31 for the interest expense accrued to that date)