Question

Pina Colada Corp. lends Sheffield industries $56400 on August 1, 2022, accepting a 9-month, 6% interest note. If Pina Colada Corp. prepares its financial statements as of December 31, 2022, what adjusting entry must it make?

Answer 1

Answer:

31 December 2022    Interest Receivable     $1410 Dr

                                        Interest Revenue          $1410 Cr

Explanation:

The adjusting entry made on 31 December will record the interest revenue that relates to this year from August to December following the accrual principle. The interest revenue for these 5 months is 56400 * 0.06 * 5/12 = $ 1410

The interest is not received now as it will be received on note's maturity. Thus, we will debit the interest receivable account which is an asset.