1. On January 1, Harrington, Inc. borrows $63,000 from First Estate Bank. The lo

Question

1.      On January 1, Harrington, Inc. borrows $63,000 from First Estate Bank. The loan is due in one year along with 4% interest. The company is preparing its quarterly report for March 31. Which of the following best describes the necessary accrual for interest expense?

a.       $630 increase liabilities, increase expenses

b.      $2,520 decrease liabilities, decrease cash

c.       $2,520 increase expenses, decrease cash

d.      $2,520 increase liabilities, decrease expenses

e.       $630 decrease liabilities, decrease cash

Explanation / Answer

Interest for quarterly report for march 31 = $ 63000*4%*3/12 = $ 630

$ 630 increase liability, increases expense

Journal enrty

Interest expense Dr. $ 630

Accrued Interest Cr. $ 630

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