Question

What adjustment entry is required for recording interest on capital when the capital account is maintained under the fixed capital method?

a. Debit Interest on Capital, Credit Cash
b. Debit Interest on Capital, Credit Capital
c. Debit Cash, Credit Interest on Capital
d. Debit Capital, Credit Interest on Capital

Answer 1

The adjustment entry for recording interest on capital under the fixed capital method is to debit Interest on Capital and credit Capital. Therefore, the correct option is B.

Step-by-step explanation:

The correct adjustment entry for recording interest on capital when the capital account is maintained under the fixed capital method is:

b. Debit Interest on Capital, Credit Capital

This entry increases the Interest on Capital account and decreases the Capital account, reflecting the allocation of interest earned on the capital investment.