Johnson Issues a $5,000,7%,100-Day Promissory Note to Adam on November

question 86

Multiple Choice

Johnson issues a $5,000,7%,100-day promissory note to Adam on November 1.What is the adjusting entry made by Johnson on December 31 to recognize the interest (using a 360-day year) ?

• A)Debit Interest Expense;credit Interest Payable for $58.33
• B)Debit Interest Expense;credit Interest Payable for $97.22
• C)Debit Interest Receivable;credit Interest Income for $58.33
• D)Debit Interest Receivable;credit Interest Income for $97.22

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Definitions:

Warranty Expense

Costs incurred by a company due to repairing or replacing products under warranty.

Bad Debts Expense

An expense reported on the income statement, representing the money lost by a business from non-recoverable credit sales.

Temporary Differences

Differences between the carrying amount of assets or liabilities and their tax bases, which will result in taxable or deductible amounts in the future.

Permanent Differences

Permanent differences are disparities between taxable income and accounting income that arise from certain transactions and events, which will not reverse in the future.