Martin & Associates borrowed $5,000 on April 1, 2010 at 8% interest with both principal and interest due on March 31, 2011.
Question 1: Which of the following journal entries should the firm use to accrue interest at the end of each month?
A. Dr. Interest payable, Cr. Cash
B. Dr. Interest payable, Cr. Interest receivable
C. Dr. Interest expense, Cr. Interest payable
D. Dr. Interest payable, Cr. Interest expense
Question 2: How much should be in the firm’s interest payable account at December 31, 2010?
A. $300
B. $400
C. $0
D. $333
Question 3: Which of the following journal entries should the firm use to record the payment of interest on March 31, 2011?
A. Dr. Interest expense, Dr. Interest payable, Cr. Cash
B. Dr. Interest payable, Cr. Interest receivable
C. Dr. Interest expense, Cr. Interest payable
D. Dr. Interest payable, Cr. Interest expense
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