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27 December, 01:13

On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-year, 7% note. If the company's fiscal year ends as of December 31, Lawrence should make an entry to increase a. interest expense, $4,200. b. notes payable, $1,050. c. interest payable, $1,050. d. prepaid interest, $3,150.

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  1. 27 December, 02:22
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    Lawrence should make an entry to increase c. interest payable, $1,050

    Explanation:

    The interest amount Lawrence Company had to pay for the note:

    $60,000 x 7% = $4,200

    In Lawrence's fiscal year ends on December 31, following 3 months of borrowing the $60,000. Following the Accrual basis, the company should make an adjustment entry to record interest expense with amount:

    $4,200/12 x 3 = $1,050

    The entry:

    Debit Interest expense $1,050

    Credit Interest payable $1,050
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