Final answer:
To record the accounting transactions for Hatcher Company, journal entries included accruing $600 of interest income on December 31, 2018, closing the Interest Income account with a $2,400 credit to Retained Earnings, and recording the cash receipt of $900 and clearing Interest Receivable by $600 with the difference credited to Interest Income on January 31, 2019.
Step-by-step explanation:
Journal Entries for Hatcher Company
When preparing journal entries for Hatcher Company that span over two periods (December 31, 2018, and January 31, 2019), it's important to recognize the accrual basis of accounting. Let's address each part of the question step by step:
a. Accrue the Interest Earned on December 31, 2018
The company needs to recognize the interest income that has been earned but not yet received. This means that on December 31, 2018, the company should make the following entry:
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- Debit: Interest Receivable $600
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- Credit: Interest Income $600
b. Close the Interest Income Account on December 31, 2018
After adjusting for accrued interest, the year-end balance for the Interest Income account is $2,400. The closing entry transfers this balance to the Retained Earnings account as follows:
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- Debit: Interest Income $2,400
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- Credit: Retained Earnings $2,400
c. Record the Cash Receipt of Interest on January 31, 2019
On January 31, 2019, the company receives the full interest payment of $900. The journal entry to record this transaction encompasses both the cash receipt and the recognition of the previously accrued income:
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- Debit: Cash $900
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- Credit: Interest Receivable $600
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- Credit: Interest Income $300
The Interest Receivable is cleared, and the remaining interest is added to Interest Income because it has been received in the new period.