Question

The City of Ashland Investment Pool has three participants, X, Y, and Z. Their relative equities in the pool at a particular point in time were 45 percent, 30 percent, and 25 percent, respectively. At the end of the year, additional investment earnings were accrued in the investment pool in the amount of $100,000 and a report of the earnings was sent to participants X, Y, and Z. To record its share of the accrued interest, participant Y will:

A) Debit Interest Receivable for $30,000.
B) Debit Equity in Pooled Investments for $30,000.
C) Credit Revenues for $30,000.
D) Both B and C are correct.

Answer 1

Participant Y should debit Interest Receivable and credit Revenues for $30,000 to record its share of the accrued investment earnings, making option D correct.

Step-by-step explanation:

The student's question asks how participant Y should record its share of the accrued interest from the City of Ashland Investment Pool, with the options provided being various accounting entries. To answer the question, when additional investment earnings of $100,000 are accrued in the investment pool and Y has a 30 percent equity, Y is allocated $30,000 of that amount (30% of $100,000).

To record its share of the accrued interest, participant Y should:

• Debit Interest Receivable for $30,000, which reflects Y's claim to receive cash.
• Credit Revenues for $30,000, which reflects the increase in earnings from investments.

Therefore, the correct recording would involve both a debit to Interest Receivable and a credit to Revenues for $30,000, making option D both B and C correct.