(Learning Objective 3: Adjust the accounts for interest expense) Cheap Travel borrowed $60,000 on October 1 by signing a note payable to Community Bank. The interest expense for each month is $250. The loan agreement requires Cheap to pay interest on December 31.
1. Make Cheap’s adjusting entry to accrue monthly interest expense at October 31, at November 30, and at December 31. Date each entry and include its explanation.
2. Post all three entries to the Interest Payable account. You need not take the balance of the account at the end of each month.
3. Record the payment of three months’ interest at December 31.