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23 March, 14:26

Tate Company purchased equipment on November 1, 2020 and gave a 3-month, 9% note with a face value of $120,000. Tate's year-end is December 31st. The December 31, 2020 adjusting entry is Group of answer choices debit Interest Expense and credit Cash, $7,200 debit Interest Expense and credit Interest Payable, $1,800 debit Interest Expense and credit Interest Payable, $1,200 debit Interest Expense and credit Interest Payable, $10,800

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  1. 23 March, 14:57
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    Answer: Debit Interest Expense and credit Interest Payable, $1,800

    Explanation:

    The amount of time that has elapsed between the 1st of November and the 31st of December is 2 months.

    This means that the interest over the last 2 months has to be calculated and recorded on the 31st of December.

    Bear in mind that the 9% is an annual interest rate figure and so when calculating the interest, you must adjust for the amount of months in the year.

    Interest owed for 2 months is,

    = 9% * 2/12 (2 months have elapses out of 12 months in the year) * $120,000

    = $1,800

    Interest owed is $1,800.

    The correct entry will therefore be,

    Dec 31

    DR Interest Expense $1,800

    CR Interest Payable $1,800

    (To record interest payable on note)
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