Question

Question: The following information is taken from Camara Company’s unadjusted and adjusted trial balances.

Unadjusted Adjusted Credit Debit Credit

Prepaid insurance $4,100  $3,700

Interest payable    $0           $800

Given this information, which of the following is likely included among its adjusting entries?

a. A $400 debit to Insurance Expense and an $800 debit to Interest Payable.

b. A $400 debit to Insurance Expense and an $800 debit to Interest Expense.

c. A $400 credit to Prepaid Insurance and an $800 debit to Interest Payable

Answer 1

Step 1: Definition of Interest payable

When the interest payment is due but not paid, this amount is known as interest payable.

Step 2: Adjusting entries

In the first case, the insurance expense account is debited with $400

In the second case, the interest expense account is debited for $800 because there is an accrued interest.

Hence,option (b) is correct

Option (b) is correct