Question

On September 1, 2012, Daylight Donuts signed a $200,000, 8%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2013. Daylight Donuts records the appropriate adjusting entry for the note on December 31, 2012. In recording the payment of the note plus accrued interest at maturity on March 1, 2013, Daylight Donuts would

a. Debit interest expense, $5,333.
b. Debit interest payable, $2,667.
c. Debit interest expense, $2,667.
d. Debit interest expense, $8,000.

Answer 1

Answer:

c. Debit interest expense, $2,667.

Explanation:

The adjusted journal entry is shown below:

Interest expense A/c Dr $2,667

         To Interest payable A/c $2,667

(Being accrued interest adjusted)

The interest expense is computed below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)  

= $200,000 × 8% × (2 months ÷ 12 months)

= $2,667

The 2 months is calculated from December 31, 2012 to March 1, 2013