A company receives interest on a $99000, 6%, 5-year note
receivable each April 1. At December 31, 2020, the following
adjusting entry was made to accrue interest receivable:
Interest Receivable | 4455 | |
Interest Revenue | 4455 |
Assuming that the company does not use reversing
entries, what entry should be made on April 1, 2021 when the annual
interest payment is received?
Cash | 4455 | |
Interest Receivable | 4455 |
Cash | 5940 | |
Interest Revenue | 5940 |
Cash | 1485 | |
Interest Revenue | 1485 |
Cash | 5940 | |
Interest Receivable | 4455 | |
Interest Revenue | 1485 |
Notes: 1 | |||
CALCULATION OF TOTAL INTEREST EARNED ON ISSUE OF NOTE | |||
Note | |||
Principal | $ 99,000 | ||
Rate of interest in % | 6% | ||
Total interest for one year = | $ 5,940 | ||
Accreud interest from Apr to Dec = ($ 99,000 X 6% X 9 / 12 Months) = | $ 4,455 | ||
Interest Revenue for the period of Jan to Mar 2021 = ($ 5,940 - $ 4,455) | $ 1,485 | ||
Journal entry at the time of receipt of interest is posted as below, | |||
Solution: | |||
Journal Entries | |||
Date | ACCT Title and explanation | Debit | Credit |
April 01. 2021 | Cash | $ 5,940 | |
Interest Receivable | $ 4,455 | ||
Interest Revenue | $ 1,485 | ||
Answer = Option 4 | |||
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