Question

25. A company places, for four months, $10,000 into a money market account that is expected to pay 9 percent annual interest, compounded monthly. After one month, the entry to record interest earned will include a [B] debit to Cash for $75 [A] credit to Interest Receivable for $75. D] debit to Interest Income for $75. [C] debit to Short-Term Investménts for $75. Bank of Amonk computes interest semiannually. If the interest rate is currently 6 percent, the amount deposited today should be multiplied by which future value factor to calculate the amount that will accumulate by the end of 10 years? 26. [B] 20 periods at 3 percent [A] 20 periods at 12 percent D] 10 periods at 6 percent [C] 10 periods at 3 percent

Answer 1

25.

Answer: B

This is Interest income, which is assumed to be received. The journal is Cash debit and Interest income credit.

Amount = Investment × Rate of interest × (1 / 12 months is a year)

            = 10,000 × 9% × (1/12)

            = 900 / 12

            = $75

26.

Answer: B

The factor should be matched with the following details:

Periods = Year × 2 (since semi-annual)

            = 10 × 2

            = 20

Semi-annual interest rate = 6% / 2 = 3%

Therefore, 20 periods at 3%