On November 1,2012,EZ Products Borrowed $48,000 on a 5%,10-Year Note $$\begin{array} { | l | r | r | } \hline \text { Interest expense } & 400 & \\\hline \text { Cash } & & 400 \\\hline\end{array}$$

question 152

Multiple Choice

On November 1,2012,EZ Products borrowed $48,000 on a 5%,10-year note with annual installment payments of $4,800 plus interest due on November 1 of each succeeding year.
-Which of the following journal entries would be needed at December 31,2012 to accrue interest from November 1 through year-end?

• A) \[\begin{array} { | l | r | r | }
• \hline \text { Interest expense } & 400 & \\
• \hline \text { Cash } & & 400 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | r | r | }
• \hline \text { Interest expense } & 400 & \\
• \hline \text { Interest payable } & & 400 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | r | r | }
• \hline \text { Interest expense } & 400 & \\
• \hline \text { Accounts payable } & & 400 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | r | r | }
• \hline \text { Cash } & 400 & \\
• \hline \text { Interest expense } & & 400 \\
• \hline
• \end{array}\]

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Definitions:

Income Taxes Expense

The amount of money a company or individual owes to the government based on their taxable income.

Times Interest Earned Ratio

A financial metric that measures a company's ability to meet its debt obligations by comparing its interest expenses to its earnings before interest and taxes (EBIT).

Net Income

The net income of a company, which is the remaining amount after deducting all expenses and taxes from the total revenue.

Warranty Expense

Warranty expense is the estimated cost a company expects to incur for repairing, replacing, or compensating for defective products under warranty.