Question

On November 1, Jasper Company loaned another company $100.000 at a 6.0% interest rate. The note receivable plus interest will not be collected until March of the following year. The company's annual accounting period ends on December 31, and adjustments are only made at year-end. The adjusting entry needed on December 31 is: Multiple Choice No entry required Debit interest Expense,55,000 credit Interest Payable, $5,000 Debit interest Expense, $1000; credit Note Payable, $1,000, Debit interest Receivable, 5500 credit interest Revenue, $500. Debit interest Receivable, $1000: credit interest Revenue, $1000,

Answer 1

The correct answer is "Debit Interest Receivable, $1,000; Credit Interest Revenue, $1,000".

Supporting calculations and explanations:

It is a note receivable so interest payable will not come but only interest receivable is comes, similarly, it is not interest expense but it is interest revenue because when it is note payable then interest payable and interest expense comes as notes payable is a liability so interest on notes payable is an expense and notes receivable is an asset so interest on notes receivable is a revenue.

The adjusting entry is shown below -

Adjusting Entry
Date	General Journal	Debit	Credit
Dec. 31	Interest Receivable ($100,000*6/100*2/12 months)	$1,000
	Interest Revenue		$1,000
	(To record the adjustment for interest earned on notes receivable for 2 months that is from November to December.)