Prepayments of interest expense under asset method should be recorded as debit to unearned interestGroup of answer choicesTrueFalse

Step 1: Analyze the Statement

The question pertains to the accounting treatment of prepayments of interest expense under the asset method. It asks whether these prepayments should be recorded as a debit to unearned interest.

Step 2: Relevant Concepts

In accounting, prepayments are initially recorded as an asset because they represent future benefits. Specifically, prepayments can be recorded under different accounts depending on their nature. An unearned interest refers to money received before it is earned but also correctly recorded as a liability, not an asset.

Step 3: Analyze and Detail

1. Prepayments of interest expense represent amounts that are paid in advance for interest to be incurred in the future.
2. Under the asset method, these prepayments should be recorded as an asset, typically under "Prepaid Interest" or "Interest Receivable".
3. Unearned interest refers to funds received that will be recognized as revenue in the future and is classified as a liability, not an asset.

Step 4: Verify and Summarize

Given these definitions:

• Prepayments should not be recorded as "unearned interest" since unearned interest is a liability.
• The correct classification for prepayments of interest expense is as a debit to a prepaid interest asset account, not unearned interest.

Final Answer

False. Prepayments of interest expense should not be recorded as a debit to unearned interest. They should be recorded as a debit to an asset account, such as "Prepaid Interest".