On the last day of October, Wicker Company borrows $120,000 on a bank note due in 90 days (3 months) at %11 percent. Interest is not included in the face amount. Assume that Wicker properly recorded the borrowed amount at October 31. If no payments have been made with respect to this loan, should a liability be recorded at Wicker's fiscal year end of December 31, and if so, what is the amount of the liability that should be record? Assume that each month is 30 days.

Respuesta :

Answer:

interest expense 3,000 debit

   interest payable       3000 credit

Explanation:

We will recognize the accrued interest for the period Nov 1st to Dec 31th

 principal   x   rate     x    time

  120,000   x 11%/12   x 3 months = 3,000

We divide the rate by 12 as there is express as annual rate and we need to match with time, which is months.

The entry will recognize interest expense for 3,000

and interest payable for 3,000