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28 January, 08:31

A company is in its first month of operations. On January 1, the company borrows $10,000 from the bank. The bank charges annual interest of 12% on the borrowed amount. Interest is due at the end of the year. What adjusting entry would be made at the end of January?

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  1. 28 January, 08:56
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    The Journal entry is as follows:

    Interest expense A/c Dr. $100

    To Interest payable A/c $100

    (To record the interest expense for the first month)

    Workings:

    Amount borrowed = $10,000

    Annual interest rate = 12%

    Interest is due at the end of the year

    Time period = 1 month

    Therefore,

    Interest expense = $10,000 * 0.12 * (1 : 12)

    = $100
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