Accrual of Interest Expense for Unpaid Debentures

Steps:

• Identify unpaid debenture interest as an accrued liability at year-end under accrual accounting.
• Debit interest expense in the income statement to recognize the period's cost.
• Credit interest payable in the balance sheet as a current liability.
• Ensure no cash outflow affects the statement of cash flows directly for this entry.

Why A is correct:

• Option A (1 and 3) aligns with debiting interest expense and crediting interest payable, per the accrual basis principle in IAS 1 and GAAP.

Why the others are wrong:

• B includes only 1, ignoring the liability recognition.
• C includes 2 (likely incorrect, e.g., no equity impact) and 3.
• D includes 2 and 4 (likely irrelevant, e.g., no asset adjustment).

Not enough information.

Final answer: A