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On May 1, the Chris Company borrowed $30,000 from the Third Street Bank on a 1-year, 6% note. If the company keeps its records on a calendar year, an adjustment is needed on December 31 to increase:_______.
a. Interest Payable, $900.
b. Interest Expense, $1,800.
c. Interest Payable, $1,200.
d. Interest Expense, $600.

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Answer:

c. Interest Payable, $1,200.

Explanation:

Based on the information given in a situation where the company keeps its records on a calendar year, an adjustment is needed on December 31 to increase: INTEREST PAYABLE, by $1,200

Increase in Interest payable=6%*30,000*8/12

Increase in Interest payable=$1,200

(May 1 to December 31=8 months)