Mama's Pizza Shoppe borrowed $6,000 at 9% interest on May 1, 2021, with principal and interest due on October 31, 2022. The company's fiscal year ends June 30, 2021. What adjusting entry is necessary on June 30, 2021?

Multiple Choice:

A. Prepaid interest 90

Interest payable 90

B. Interest expense 180

Interest payable 180

C. Interest expense 90

Interest payable 90

Question

Esparza

Business

3 July, 10:51

Mama's Pizza Shoppe borrowed $6,000 at 9% interest on May 1, 2021, with principal and interest due on October 31, 2022. The company's fiscal year ends June 30, 2021. What adjusting entry is necessary on June 30, 2021?

Multiple Choice:

A. Prepaid interest 90

Interest payable 90

B. Interest expense 180

Interest payable 180

C. Interest expense 90

Interest payable 90

+1

Answers (1)

Know the Answer?

Dakota Wu · Answer 1

C. Interest expense 90

Explanation:

In accrual method of accounting, expenses and revenue is recognised when they are incurred or earned and not necessarily when cash has gone out or come in.

Adjusting entries are used to recognise expenses or revenue at a particular period.

If Mama's pizza borrowed $6,000 in May 2021. Principal and interest is due in October 2021 (that is in 6 months).

The interest for the 2 months May and June will be calculated.

Accrued interest will be

I = principal * rate*time

I = 6,000 * 0.09 * 2/12

I = $90 for the 2 month period