An adjusting entry is a journal entry made at the end of an accounting period to update a company's financial records to reflect the true financial position of the business.
To determine the correct adjusting entry for this event, we need to calculate the interest expense for the period from October 31, 2015 to December 31, 2015.
The interest rate is 10% and the period is 2 months (December has 31 days and November has 30 days, for a total of 61 days), so the interest expense can be calculated as follows:
Interest expense = $50,000 * 10% * (61 / 365)
= $1,098.63
To record this interest expense, we need to make an adjusting entry on December 31, 2015. The adjusting entry should be a debit to the Interest Expense account and a credit to the Interest Payable account.
The debit should be for the amount of the interest expense, $1,098.63, and the credit should be for the same amount.
Therefore, the correct adjusting entry for this event is:
Debit Interest Expense: $1,098.63
Credit Interest Payable: $1,098.63
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