**Scenario:**Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, Year 1. The note carried a one-year term and a 12% rate of interest. How will the adjustment, dated December 31, Year 1, to record accrued interest expense impact the financial statements?**Multiple Choice Options:**1. Decrease assets and decrease retained earnings by $2,0002. Increase liabilities and decrease stockholders’ equity by $1,6003. Increase liabilities and decrease stockholders’ equity by $2,0004. Decrease stockholders’ equity and increase liabilities by $4,800**Explanation:**This question relates to the accounting treatment of accrued interest expenses on a note payable. Since the note was issued on August 1 and the interest rate is 12% annually, the interest for the period from August 1 to December 31 (5 months) needs to be calculated and recorded. The appropriate treatment involves recognizing the accrued interest as an increase in liabilities and a decrease in equity, reflecting the expense incurred.

Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, Year 1. The note carried a one-year term and a 12% rate of interest. How will the adjustment, dated December 31, Year 1, to record accrued interest expense impact the financial statements? Multiple Choice Decrease assets and decrease retained earnings by $2,000 Increase liabilities and decrease stockholders' equity by $1,600 Increase liabilities and decrease stockholders' equity by $2,000 Decrease stockholders' equity and increase liabilities by $4,800

Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, Year 1. The note carried a one-year term and a 12% rate of interest. How will the adjustment, dated December 31, Year 1, to record accrued interest expense impact the financial statements? Multiple Choice Decrease assets and decrease retained earnings by $2,000 Increase liabilities and decrease stockholders' equity by $1,600 Increase liabilities and decrease stockholders' equity by $2,000 Decrease stockholders' equity and increase liabilities by $4,800

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Subject: accounting
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