At the End of the Year, a Company Makes a Journal

question 21

Multiple Choice

At the end of the year, a company makes a journal entry to accrue the interest expense on a short-term note payable. As a result of this transaction:

• A) current liabilities increase and current assets increase.
• B) current liabilities increase and equity increases.
• C) current liabilities decrease and equity decreases.
• D) current liabilities increase and equity decreases.

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Definitions:

Fixed-Rate Payments

Payments made in consistent amounts over time in the context of a loan or other financing arrangement, where the interest rate does not change.

Interest Rate Volatility

Refers to the degree of variation in the interest rate over a specific period; it is a critical factor affecting financial markets and instruments.

Bretton Woods Agreement

The 1944 financial agreement that established the International Monetary Fund (IMF) and the World Bank, setting up a system of fixed exchange rates to stabilize the global economy.

Price Volatility

The rate at which the price of a security increases or decreases for a given set of returns, influencing the risk level of the security.