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Question & Answer: 6. A company borrowed $12,000 on 12/1/2014 and issued a 12% note that is to be paid in one year. The books only r…..

6. A company borrowed $12,000 on 12/1/2014 and issued a 12% note that is to be paid in one year. The books only reflect the Note Payable of $12,000. Which of the following entries would be required at year end on 12/31/14. a. Prepaid Interest $1,000 Interest Payable $1,000 b. Interest Expense $1,000 Interest Payable $1,000 c. Interest Expense $1,200 Interest Payable $1,200 d. Interest Expense $120 interest Payable $1,200 e. None of the above

6. A company borrowed $12,000 on 12/1/2014 and issued a 12% note that is to be paid in one year. The books only reflect the Note Payable of $12,000. Which of the following entries would be required at year end on 12/31/14. a. Prepaid Interest $1,000 Interest Payable $1,000 b. Interest Expense $1,000 Interest Payable $1,000 c. Interest Expense $1,200 Interest Payable $1,200 d. Interest Expense $120 interest Payable $1,200 e. None of the above

Expert Answer

 

Answer is D

The following entry would be required at year endon 12/31/14:

General Journal Debit Credit
Interest Expense[($12,000 × 0.12) / 12] $120
Interest Payable $120
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