Question

ABC Corp. received a 3-month, 8% per year, $1, 500 note receivable on December 1. The adjusting entry on December 31 will include a:___________ a) debit to interest Revenue of $10 b) credit to interest Receivable of $20 c) credit to interest Revenue of $30 d) debit to interest Receivable of $10

Answer 1

Answer:

Option D is the correct answer.

d) debit to interest Receivable of $10

Explanation:

Under the accrual basis or principle of accounting, we match the revenue with the expenses and record the transactions in the period to which they relate to rather than when the cash is paid or received. This means that the interest receivable that is accrued for time period relating to this year should be recorded as a revenue in the current period and as an asset under interest receivable as it will be received in the next period.

Thus, the interest on the note relating to 1 month of December will be recorded as follows,

Interest Revenue = 1500 * 0.08 * 1/12 = 10

31 Dec 2021

Interest Receivable       10 Dr

    Interest Revenue        10 Cr