A Company Has a Loan That Accrues Interest at a Rate

question 117

Multiple Choice

A company has a loan that accrues interest at a rate of $20 a day.The company pays the interest once a quarter.Which of these would be an accurate adjustment for a month in which no payments are made?

• A)Debit Interest Payable and credit Interest Expense.
• B)Debit Loans Payable and credit Cash.
• C)Debit Interest Expense and credit Interest Payable.
• D)Debit Cash and credit Loans Payable.

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Definitions:

Bailment

The act of temporarily placing control over or possession of personal property in the hands of another, under agreement.

Ordinary Care

The level of care that a reasonably careful person would exercise under similar circumstances to avoid harm to themselves or others.

Prudent Person

A legal standard referring to the hypothetical individual who exercises the care, diligence, and wisdom that a reasonable person would under similar circumstances.

Checkroom

A place where visitors can deposit their personal belongings, such as coats and bags, for safekeeping.