Question

Mason Company gathered the following information from its accounting records and the October bank statement to prepare the October bank reconciliation:

Ending cash balance per books, 10/31 $3,500
Deposits in transit 150
Interest received from bank 850
Bank service charge for check printing 30
Outstanding checks 2,000
NSF check of T. Owens 175
Use the information above to answer the following question. What journal entry would Mason Company be required to record for the interest received from the bank?
A. debit Cash and credit Interest Revenue for $850
B. debit Interest Revenue and credit Cash for $850
C. No journal entry is required because the bank is aware of the interest payment
D. debit Interest Receivable and credit Interest Revenue for $850

Answer 1

The proper journal entry for interest received from the bank is a debit to Cash and a credit to Interest Revenue for $850, reflecting the increase in cash and the recognition of income.

Step-by-step explanation:

The journal entry Mason Company would be required to record for the interest received from the bank is a debit to Cash and a credit to Interest Revenue for $850. This would recognize the increase in cash due to interest earned on Mason Company's account held at the bank, and it would acknowledge the corresponding income that resulted from the interest payment made by the bank for using Mason Company's deposits. The correct answer to the question is A. debit Cash and credit Interest Revenue for $850.