Question

On August 1, Year 1, Luna Sea Sushi, Inc., issued an 8-month, 9%,$100,000 note. Record the adjusting journal entry for the interest incurred and owed as of the year ended December 31, Year 1. Round to the nearest whole $1. Debit Credit A. Cash $4,500 B. Interest Expense $5,630 C. Cash $5,630 D. Interest Expense $3,750 E. Interest Expense $4,500 F. Interest Payable $5,630 G. Interest Payable $3,750 H. Interest Payable $4,500

Answer 1

The adjusting journal entry for the interest incurred and owed as of the year ended December 31, Year 1 for Luna Sea Sushi, Inc.'s note is a debit to Interest Expense for $4,500 and a credit to Interest Payable for $4,500.

Step-by-step explanation:

The adjusting journal entry for the interest incurred and owed as of the year ended December 31, Year 1 for Luna Sea Sushi, Inc.'s 8-month, 9%,$100,000 note would be:

Debit: Interest Expense $4,500

Credit: Interest Payable $4,500

Answer 2

To record the adjusting journal entry for the interest incurred by Luna Sea Sushi, Inc. on its note, calculate the accrued interest for 5 months and then debit the Interest Expense and credit the Interest Payable for the calculated amount of $3,750.

Step-by-step explanation:

The student is asking how to record an adjusting journal entry for the interest incurred and owed on a note issued by Luna Sea Sushi, Inc. First, we need to calculate the amount of interest that has accrued on the note from August 1 to December 31 of Year 1, which is a period of 5 months.

To calculate the interest incurred: Interest = Principal x Rate x Time = $100,000 x 9% x (5/12) = $3,750.

The correct adjusting journal entry to record the interest owed as of December 31, Year 1, would be:

• 
  
• Debit: Interest Expense $3,750
• 
  
• Credit: Interest Payable $3,750

This entry records the interest expense incurred during the period and the associated liability since the interest has not yet been paid.