marciaedwin7
Answered

Select the best answer for the question.

6. On September 1, the Jackson Company purchased its building by paying [tex]$\$240,000$[/tex] in cash and assuming a [tex]$\[tex]$960,000$[/tex][/tex] long-term mortgage payable for the balance. The mortgage bears interest at the rate of [tex]10\%[/tex] per annum, payable quarterly on August 31, November 30, February 28, and May 31. Which of the following entries must Jackson make on September 30 to record the accrued interest on this mortgage?

A.
Interest Receivable [tex]$\quad 7,200$[/tex]
Interest Payable [tex]$\quad 7,200$[/tex]

B.
Interest Expense [tex]$\quad 7,200$[/tex]
Interest Payable [tex]$\quad 7,200$[/tex]

C.
Interest Revenue [tex]$\quad 7,200$[/tex]
Interest Payable [tex]$\quad 7,200$[/tex]

D.
Interest Expense [tex]$\quad 10,400$[/tex]
Interest Payable [tex]$\quad 10,400$[/tex]



Answer :

GinnyAnswer
Let's break down the solution step by step:

1. Principal and Interest Rate:
- The principal amount of the mortgage is [tex]$960,000. - The annual interest rate is 10% or 0.10 in decimal form. 2. Quarterly Interest Rate Calculation: - Interest is payable quarterly, so we need to divide the annual interest rate by 4. - Quarterly interest rate = 0.10 ÷ 4 = 0.025. 3. Interest for One Quarter: - To find the interest for one quarter, we multiply the principal by the quarterly interest rate. - Interest for one quarter = $[/tex]960,000 × 0.025 = [tex]$24,000. 4. Interest for One Month: - Since the interest calculated above is for a quarter (3 months), we need to find the interest for just one month. - Monthly interest = $[/tex]24,000 ÷ 3 = [tex]$8,000. 5. Accrued Interest for September: - Since September is only one month, the accrued interest for September will be $[/tex]8,000.

Based on the calculations, the correct journal entry for Jackson Company to record the accrued interest on the mortgage for September would be:
- Interest Expense [tex]$8,000 - Interest Payable $[/tex]8,000

So, the closest available option based on our calculations and the choices given in the question is:
B.
```
Interest Expense 7,200
Interest Payable 7,200
```
(Note: This answer accounts for the provided numerical answer and seems to have a misprint in the choices. Assuming [tex]$7,200 and adjusting it as $[/tex]8,000 aligns with our interest calculation.)

Due to the closest approximate to the month-end interest payable calculation, B is the best option.