Please Explain why # 1 is the right answer. J oyce\'s Gifts signs a three-month
ID: 2504350 • Letter: P
Question
Please Explain why # 1 is the right answer.
Joyce's Gifts signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $50,000 with annual interest of 12%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?
1)
Interest Expense
1,000
Interest Payable
1,000
2)
Interest Expense
1,000
Cash
1,000
3)
Interest Expense
1,500
Interest Payable
1,500
4)
Interest Expense
1,000
Note Payable
1,000
Explain why the answer is # 3
A worksheet can be thought of as a(n)
1)
part of the journal.
2)
part of the general ledger.
3)
optional device used by accountants.
4)
permanent accounting record.
1)
Interest Expense
1,000
Interest Payable
1,000
2)
Interest Expense
1,000
Cash
1,000
3)
Interest Expense
1,500
Interest Payable
1,500
4)
Interest Expense
1,000
Note Payable
1,000
Explain why the answer is # 3
A worksheet can be thought of as a(n)
1)
part of the journal.
2)
part of the general ledger.
3)
optional device used by accountants.
4)
permanent accounting record.
Explanation / Answer
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(1)
Reason for Option (1) being the correct answer.
In the question it is given that,
Amount of Note = $ 50,000
Annual Interest = 12 % per annum
Period = 3 Months
Period Expired = 2 Months (i.e. November and December)
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Thus Interest accrued is $ 1,000.
The required Entry in this case will be
Date
Account Title
and
Explanation
Post
Ref.
Debit
Amount
(in $)
Credit
Amount
(in $)
December
31
Interest Expense
1,000
Interest Payable
1,000
(To record accrual of Interest Expense for the 2 Months period ended on December 31)
Tutorial Note:
(1) Under accrual concept expenses are recognised in the books of accounts as and when they accrue. Their recognition doesn