On August 1, Year 1 Gomez Company borrowed $48,000 cash. The one-year note carried a 5% rate of interest. Which of the following shows how the December 31, Year 1 recognition of accrued interest will effect Gomez's ledger accounts?

A) Interest payable (2400), Retained earnings (2400). B) Cash (2400), Retained earnings (2400). C) Interest payable (1400), Retained earnings (1400). D) Interest payable + 1000, Retained earnings (1000).

Question

Business

Liam Mclean

19 July, 16:48

On August 1, Year 1 Gomez Company borrowed $48,000 cash. The one-year note carried a 5% rate of interest. Which of the following shows how the December 31, Year 1 recognition of accrued interest will effect Gomez's ledger accounts?

A) Interest payable (2400), Retained earnings (2400). B) Cash (2400), Retained earnings (2400). C) Interest payable (1400), Retained earnings (1400). D) Interest payable + 1000, Retained earnings (1000).

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Answers (1)

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Yasmin Bradley · Answer 1

D) Interest payable + 1000, Retained earnings (1000).

Explanation:

Interest expense = 48000*5%*5/12

= 1000

Interest expense effect retained earning decrease = - 1000

Interest payable increase = 1000

Therefore, The December 31, Year 1 recognition of accrued interest will effect Gomez's ledger accounts in a way that Interest payable + 1000, Retained earnings (1000).