A company borrowed $4,000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. Demonstrate the required adjusting entry by choosing the correct statement.

The required adjusting entry:

Debit Interest expense $30

Credit Interest payable $30

Explanation:

The company borrowed $4,000 from the bank at an interest rate of 9%.

Th amount of interest the company paid per year = $4,000 x 9% = $360

Assuming that there are 360 days per year to calculate interest. By the end of the accounting period, the loan had been outstanding for 30 days. The company recording the interest expense:

$360 x 30/360 = $30

by the adjusting entry:

Debit Interest expense $30

Credit Interest payable $30