Answer:
The accrued interest payable to be reported on December 31, 2014 will be $240 and option a is the correct answer.
Explanation:
The interest rate given on the notes payable is the annual rate. Following the accrual basis of accounting, the revenues and expenses for a period should be matched and recorded in their respective periods. Thus, the interest relating to the period from October to December will be recorded as an expense on 31 December 2014 and debited to interest expense and credited to interest payable as the interest will be paid at maturity.
The interest expense for the 3 month period from October to December is,
Interest expense = 16000 * 0.06 * 3/12 = $240
The entry will be,
31 Dec 2014 Interest expense $240 Dr
Interest Payable $240 Cr
Answer:
The amount of accrued interest payable to be reported on the December 31, 2014 balance sheet is a $240
Explanation:
Phipps Company borrowed $16,000, 6% interest rate.
The amount of the interest per year = 6% x $16,000 = $960
The amount of the interest per month = $960/12 = $80
On December 31, 2014, following 3 months borrowing, the amount Interest expense Phipps Company records:
$80 x 3 = $240
The adjusting entry:
Debit Interest expense $240
Credit Interest Payable $240
