Question

1. A company receives interest on a $40,000, 8%, 5-year note receivable each April 1. At December 31, 2020, the following adjusting entry was made to accrue interest receivable: Interest Receivable ........... ....... 2,400 Interest Revenue ................. 2,400 Assuming that the company does use reversing entries, what entry should be made on April 1, 2021 when the annual interest payment is received?

Answer 1

the following entry will be made on April 1 2021:

date	accounts	debit	credit
April 01 2021	Cash a/c	3,200
	......Interest revenue a/c		3,200

working:

cash received = $40,000*8% =>$3,200.

interest revenue = $40,000*8%*3 months /12

=>$800.

But since reversing entries are made, on January 1, there would have been a credit to interest receivable of $2400.

so, the interest revenue is to be credited with full amount of interest i.e $3,200.