The following adjusting entries are required on 31 December:
Dr. Interest expense $150
Cr. Interest payable $150
What is accrued interest?
Accrued interest is the fraction of the total interest of 120-day interest that has become due on December 31, which the Carter Company is owing but would not make payment until the maturity of the note payable.
The accrued interest can be computed as the face value multiplied by the interest rate multiplied by 60 days divided by 360 days.
The interest of 10% is annual interest which makes 360 days, since the interest due is just for 60 days, 2 months, the interest needs to be time apportioned
Accrued interest=$9000*10%*60/360
Accrued interest=$150
What entries are required on 31 December?
We need to debit interest expense as an increase in expense is a debit entry and credit interest payable which is an increase in liability.
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