In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at a particular rate. It is distinct from a fee that the borrower may pay the lender or some third party.
Requirement 1: Prepare to adjust entries as follows:
Item Account Title and Explanation Debits Credits
1 Depreciation expense $12,000
Accumulated depreciation - equipment $12,000
To record adjustment for depreciation expense
2 Salaries expense $1,800
Salaries payable $1,800
To record adjustment for salaries expense
3 Interest expense ($54,000 × 12%) × 3 ÷12 $1,620
Interest payable $1,620
To record adjustment for interest expense
4 Interest receivable ($24,000 × 8%) × 10 ÷12 $1,600
Interest revenue $1,600
To record interest revenue accrued
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