Question

multiple choice question
a company borrowed $4,000 from the bank at an interest rate of 9%. by the end of the accounting period, the loan had been outstanding for 30 days. demonstrate the required adjusting entry by choosing the correct statement below.
debit interest expense for $30.
credit interest expense for $30.
debit interest payable for $30.
credit unearned revenues for $30.

Explanation:

Step1: Calculate accrued interest

First, compute daily interest: $\frac{\$4,000 \times 9\%}{360} = \$1$ per day.
Then, total 30-day interest: $\$1 \times 30 = \$30$

Step2: Identify adjusting entry

Accrued interest requires debiting the expense (Interest Expense) and crediting the liability (Interest Payable). So the correct action is to debit Interest Expense for $30.

Answer:

A. Debit Interest expense for $30.