Slack Inc. borrowed $400,000 on July 1, 2020. The note requires interest at 12% and principal to be paid in one year. Which account is debited on December 31, 2020?

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Business

Noe Bates

9 April, 09:40

Slack Inc. borrowed $400,000 on July 1, 2020. The note requires interest at 12% and principal to be paid in one year. Which account is debited on December 31, 2020?

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Rigoberto Everett · Answer 1

The account is debited on December 31, 2020: Interest expense by the entry:

Debit Interest expense $24,000

Credit Interest Payable $24,000

Explanation:

Slack Inc. borrowed $400,000 on July 1, 2020. The note requires interest at 12%.

The amount of interest Slack Inc. pays per year = $400,000 x 12% = $48,000

On December 31, 2020, the company has borrowed $400,000 for 6 months. Following the Accrual basis, Slack Inc. would report on December 31, 2020 the interest expense for 6 months:

$48,000/12 x 6 = $24,000

The adjustment entry:

Debit Interest expense $24,000

Credit Interest Payable $24,000