Question

Wildhorse Ski Shop signs a three-month note payable to help finance increases in inventory for the winter ski season. The note is signed on October 1, 2022 in the amount of $25200 with annual interest of 9%. What is the adjusting entry to be made on December 31, 2022 for the interest expense accrued to that date, assuming that no entries have been made previously to accrue interest?

Answer 1

December 31, 2022, accrued interest expense

Dr Interest expense 567

Cr Interest payable 567

Step-by-step explanation:

Interest expense = $25,200 x 9% x 3/12 = $567

Generally when we calculate interest expense we use a 360 day year, so we assume that every month has exactly 30 days. Only when we are told to calculate based on a 365 day year, we need to count every single day and then divide by 365.