Question

Garber Company lends Newell Company $20,000 on April 1, accepting a four-month, 6% interest note. Garber Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared?a. Note Receivable 20,000Cash 20,000b. Interest Receivable 100Interest Revenue 100c. Cash 100Interest Revenue 100d. Interest Receivable 300Interest Revenue 300

Answer 1

Answer:

b. Interest Receivable $100 ; Interest Revenue $100

Explanation:

The adjusting entry is shown below:

Interest receivable A/c Dr $100

       To Interest revenue A/c $100

(Being accrued interest is recorded)

The computation of accrued interest is shown below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)  

= $20,000 × 6% × ( 1 months ÷ 12 months)

= $100

The 1 month is calculated from April 1 to April 30