Question

*95. A company receives interest on a $70,000, 8%, 5-year note receivable each April 1. At December 31, 2014, the following adjusting entry was made to accrue interest receivable:

Interest Receivable 4,200
Interest Revenue 4,200

Assuming that the company does use reversing entries, what entry should be made on April 1, 2015 when the annual interest payment is received?

Answer 1

The entry that should be made on April 1, 2015, when the annual interest payment is received is: Debit: Cash - $5,600; Credit: Interest Receivable - $4,200; Credit: Interest Revenue - $1,400.

Step-by-step explanation:

When the annual interest payment is received on April 1, 2015, the company should make the following entry:

1. Debit: Cash - $5,600 (calculation: $70,000 x 0.08)
2. Credit: Interest Receivable - $4,200
3. Credit: Interest Revenue - $1,400 (calculation: $5,600 - $4,200)

This entry records the receipt of the annual interest payment, reducing the interest receivable by $4,200 and recognizing $1,400 as interest revenue for the period April 1, 2015, to December 31, 2015.