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During the fourth quarter ended December​ 31, Year​ 1, Lighting Fixtures Inc.​ (LFI) had average outstanding revolving bank loans of​ $1.2 million. Assume that the quarterly interest charges associated with these loans was​ $7,500. If LFI makes the interest payment to the banks on January​ 15, Year​ 2, what is the journal entry​ (if any) made by the company on December 31 to reflect the​ above?

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Answer:

December 31, Year 1              DR.        Cr.

Accrued Interest Expense  $7,500

Interest Payable                                 $7,500

Explanation:

On December 31 Year 1 Interest was accrued and It was recorded by the Lighting Fixtures Inc.​ (LFI) but its outstanding now. Lighting Fixtures Inc.​ (LFI) paid the interest on January 15, at this time a payment entry of a payable interest was be made. Expense was charged on December 31 of year 1.

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