on november 1, 20x1, a company signed a $200,000, 12%, six - month note payable with the amount borrowed…

on november 1, 20x1, a company signed a $200,000, 12%, six - month note payable with the amount borrowed plus accrued interest due six months later on may 1, 20x2. the company should record the following adjusting entry at december 31, 20x1: multiple choice debit interest expense and credit interest payable, $4,000. debit interest expense and credit interest payable, $12,000. debit interest expense and credit cash, $4,000. debit interest expense and credit cash, $12,000.

on november 1, 20x1, a company signed a $200,000, 12%, six - month note payable with the amount borrowed plus accrued interest due six months later on may 1, 20x2. the company should record the following adjusting entry at december 31, 20x1: multiple choice debit interest expense and credit interest payable, $4,000. debit interest expense and credit interest payable, $12,000. debit interest expense and credit cash, $4,000. debit interest expense and credit cash, $12,000.

Answer

Explanation:

Step1: Calculate monthly interest rate

Annual interest rate is 12%, so monthly interest rate = 12% / 12 = 1%.

Step2: Determine number of months from Nov 1 - Dec 31

From November 1, 20X1 to December 31, 20X1, the number of months is 2 months.

Step3: Calculate accrued - interest

Principal amount of the note is $200,000. Accrued interest = Principal × Monthly interest rate × Number of months = $200,000×1%×2 = $4,000.

Step4: Identify the adjusting - entry

The company needs to record the interest expense that has been incurred but not yet paid. The adjusting entry is to debit Interest Expense and credit Interest Payable for $4,000.

Answer:

Debit Interest Expense and credit Interest Payable, $4,000.