Question

XYZ Corporation loaned $600,000 to another corporation on December 1, 2020 and received a 3-month, 8% interest-bearing note with a face value of $600,000. What adjusting entry should Starr make on December 31, 2020

Answer 1

Answer:

Dr Interest Receivable 4,000

Cr Interest Revenue 4,000

Explanation:

Preparation of XYZ Corporation Adjusting entry

Since the XYZ Corporation loaned the amount of $600,000 to another corporation on December 1, 2020 in which XYZ Corporation received a 3 month and 8% interest-bearing note with a face value of $600,000, the first step to take is to find the interest bearing note which is calculated as 4,000(1/12×8%×600,000) and the second step is to record the transaction as :

Dr Interest Receivable 4,000

Cr Interest Revenue 4,000

(1/12×8%×600,000)