For the year-end adjustment on the note for room sales, Company AAA needs to debit Interest Receivable and credit Interest Income for the accrued interest that has not yet been received.
Step-by-step explanation:
When Company AAA received a note for their room sales amounting to $100,000 with an interest rate of 10% for 4 months, they started to accrue interest income from that date. However, by the end of their fiscal year on December 31, only 2 months' worth of interest has actually accrued. To record the interest for these 2 months, an adjustment entry needs to be made.
The interest for 2 months is calculated as $100,000 × 10% × (2/12) = $1,666.67. Since the interest has been earned but not yet received, it should be recorded as Interest Receivable on the debit side to represent the asset that the company expects to receive. On the credit side, Interest Income should be recorded to represent the earned revenue.
The journal entry for year-end adjustment would be:
Debit: Interest Receivable - $1,666.67
Credit: Interest Income - $1,666.67
The probable question can be: November 1, Company AAA Received A Notes For Their Room Sales ($100,000, Interest Rate 10%, 4 Months). • Their Fiscal Year Ends On December 31. AA Needs To Prepare End-Of-Year Adjustment For Interest On The Note. AAA Needs To Have [Select] On Debit, [Select] On Credit For The Interest. Choices: • Interest Expense • Interest Receivable • Interest
• November 1, Company AAA received a notes for their room sales ($100,000, interest rate 10%, 4 months).
• Their fiscal year ends on December 31.
AA needs to prepare end-of-year adjustment for interest on the note.
AAA needs to have [select] on Debit, [select] on credit for the interest.
Choices:
• interest expense
• interest receivable
• interest income
• interest payable