Answer:
the gift shop must recognize 31 days of accrued interest payable, total interest = principal x interest rate x time passed
= $50,000 x 12% x 31/365 days = $509.59
the adjusting entry should be:
December 31, accrued interest on note payable
Dr Interest expense 509.59
Cr Interest payable 509.59
Answer:
The adjusting entry to be made on December 31 for the interest expense accrued to that date is:
Debit Credit
Interest expense 1,000
Interest payable 1,000
Explanation:
According to the given data we have the following:
Amount of Note = $ 50,000
Annual Interest = 12 % per annum
Period = 3 Months
Period Expired = 2 Months (i.e. November and December)
Therefore, The amount of outstanding interest is computed as $ 50,000 x 12/12 x 2 x 1/100 = $ 1,000
The adjusting entry to be made on December 31 for the interest expense accrued to that date is:
Debit Credit
Interest expense 1,000
Interest payable 1,000
