On July 1, 2016, Bauer Inc. loaned $5,000 cash to an employee, who signed a note with 10% interest and is due in 12 months. On December 31, 2016, what should Bauer Inc. record as an adjusting entry?(Please provide an explanation of the question).

a. Debit notes receivable, $5,000; credit cash $5,000.

b. Debit interest expense, $250; credit interest payable, $250

c. Debit interest receivable, $250; credit interest revenue, $250.

d. Debit notes payable, $5,000; credit cash, $5,000.