Answer:
The Pita Pit should report interest expense at December 31, 2021, in the amount of: $4,120
Explanation:
The interest amount Pita Pit had to pay for the loan:
($206,000 x 12%)/12 x 6 = $12,360
Principal and interest are payable in full at maturity on May 1, 2022.
On December 31, the company had borrowed the $206,000 for two months. Following the Accrual basis, Pita Pit would report interest expense for two months at December 31, 2021:
($206,000 x 12%)/12 x 2 = $4,120
The adjusting entry:
Debit Interest expense $4,120
Credit Interest Payable $4,120
