On October 1, 2015, Attra Inc. borrows $200,000 on a three-year note that requir

Question

On October 1, 2015, Attra Inc. borrows $200,000 on a three-year note that requires the company to pay 6% interest on March 31 and September 30. On December 31, 2015, the adjusting entry to accrue interest on the note should debit:

A. Interest Expense and credit Interest Payable for $6,000.

B. Interest Payable and credit Interest Expense for $3,000

C. Interest Expense and credit Cash for $6,000

D. Interest Expense and credit Interest Payable for $3,000

A. Interest Expense and credit Interest Payable for $6,000.

B. Interest Payable and credit Interest Expense for $3,000

C. Interest Expense and credit Cash for $6,000

D. Interest Expense and credit Interest Payable for $3,000

Explanation / Answer

D. Interest Expense and credit Interest Payable for $3,000

Here, total interest will be for 1 year is 200000*6% = 12,000

now we are booking accrual entry for 3 months (Oct, Nov and Dec) so interest amount we need to devide

12,000/4 =3000

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