A Business Makes a Loan Payment on the 15^th of Each

question 12

Multiple Choice

A business makes a loan payment on the 15^th of each month. At the end of December, it has accrued 16 days worth of interest on the loan, which amounts to $450. The adjusting entry necessary at the end of the fiscal period ending December 31 would be recorded as a

• A) debit to Interest Payable and a credit to Interest Expense of $450
• B) debit to Prepaid Interest and a credit to Interest Expense of $450
• C) debit to Interest Expense and a credit to Interest Payable of $450
• D) debit to Interest Expense and a credit to Prepaid Interest of $450

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Definitions:

Punitive Damages

Financial compensation awarded to a plaintiff in a lawsuit, intended to punish the defendant for particularly harmful behavior.

Novation

Novation is the legal process by which an existing contract is replaced with a new contract, involving the same or different parties, where the obligations of the original contract are extinguished and replaced by new obligations.

Exemption Clause

A contractual provision that seeks to limit or exclude one's liability in certain situations, often subject to legal scrutiny for fairness.

Fundamental Breach

A serious violation of a contract that allows the aggrieved party to terminate the agreement and sue for damages.