Rocky Company borrowed $10,000 on November 1, 20X1. The face value of the bond is $10,000....
Rocky Company borrowed $10,000 on November 1, 20X1. The face value of the bond is $10,000. The bond has an annual interest rate of 9%. Rocky Company repaid the note in full (both principal and interest) on October 31, 20X2; no payments were made on the bond between November 1, 20X1 and October 31, 20X2. [Note: The correct adjusting entry with respect to this bond was recorded at the fiscal year end on December 31, 20X1.] The single journal entry to record the repayment of the bond (both principal and interest) on October 31, 20X2 includes a
a. Debit to Interest Expense for $750
b. Debit to Interest Payable for $750
c. Debit to Interest Expense for $150
d. Credit to Interest Expense for $150
Homework Answers
ANSWER:
OPTION C: Debit to Interest Expense for $150
REASON:
Interest expense account is an expense account which is debited with the interest amount.
Interest expenses for November and December = $10000 x 9% x (2/12)
= $150
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