As of December 31, $2,500 of interest expense has accrued on a $50,000 note payable. The note payable and the accrued interest will become due and payable next year. How will the interest affect the adjustments at the end of the period? a. Interest Expense does not affect this period since it will not be paid. The expense will be recorded when the note and interest are paid in full. b. Interest Expense should be increased, because the cost of interest relates to the current period. c. Note Payable should be increased to reflect the additional interest that will be due when the note is paid off next year. d. Interest Receivable should be increased to reflect the accrued interest on the note payable

Question

Marco Banks

Business

10 December, 20:44

As of December 31, $2,500 of interest expense has accrued on a $50,000 note payable. The note payable and the accrued interest will become due and payable next year. How will the interest affect the adjustments at the end of the period? a. Interest Expense does not affect this period since it will not be paid. The expense will be recorded when the note and interest are paid in full. b. Interest Expense should be increased, because the cost of interest relates to the current period. c. Note Payable should be increased to reflect the additional interest that will be due when the note is paid off next year. d. Interest Receivable should be increased to reflect the accrued interest on the note payable

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Charles · Answer 1

b. Interest Expense should be increased, because the cost of interest relates to the current period

Explanation:

The adjusting entry of interest expense is shown below:

Interest expense A/c Dr $2,500

To Interest payable A/c $2,500

(Being the interest expense is recorded)

Since the interest expense is recorded that increases the balance of the interest expense account plus the interest cost is also related to that period.