Question

Waterway industries loaned $610000 to another corporation on december 1, 2017 and received a 3-month, 9% interest-bearing note with a face value of $610000. What adjusting entry should starr make on december 31, 2017? Debit cash and credit interest receivable, $13725. Debit cash and credit interest revenue, $4575. Debit interest receivable and credit interest revenue, $13725. Debit interest receivable and credit interest revenue, $4575.

Answer 1

Adjusting entry for Interest receivable:

It is given that Waterway industries loaned $610000 to another corporation on December 1, 2017 and received a 3-month, 9% interest-bearing note with a face value of $610000. Hene we need to record the Interest receivable for the period of one month as on December 31. Interest =610,000*9%/12 = $4,575

The adjusting entry as on Dec. 31 shall be as follows;

Interest Receivable Debit $4,575

Interest Revenue Credit $4,575

(Being adjustment made for Interest receivable)

Hence, the correct answer is:

Debit interest receivable and credit interest revenue, $4575