Question

Sandle Company lends Roseenn Company $9,000 on April 1, accepting a four-month, 4% interest note. Sandle Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared?

Answer 1

Before preparing the financial statements, an adjusting entry should be made to accrue interest income and record interest receivable. The adjusting entry would be to record 0.33% of $9,000 as interest income and to record the amount of interest receivable.

Step-by-step explanation:

The adjusting entry that should be made before the financial statements can be prepared is to accrue interest income and record interest receivable. Since the note is a four-month, 4% interest note, it means that the interest earned for one month is 4% divided by 12 months, which is 0.33%. Therefore, on April 30, when the financial statements are prepared, Sandle Company should record 0.33% of $9,000 as interest income for the one month of April. The adjusting entry would be:

Interest Income xx
(To record accrued interest income)
Interest Receivable xx
(To record the amount of interest receivable)