Question

On September 1, Year 1, Dallas Corporation accepts a $30,000 six-month, 12 percent promissory note from one of its clients. The year-end adjustment to accrue interest revenue on December 31, Year 1 will include a _____.

A) $300 credit to Interest Revenue
B) $1,800 credit to Interest Revenue
C) $1,200 debit to Interest Receivable
D) $1,800 debit to Interest Receivable

Answer 1

The year-end adjustment to accrue interest revenue on December 31, Year 1 will include a D) $1,800 debit to Interest Receivable.

Step-by-step explanation:

The year-end adjustment to accrue interest revenue on December 31, Year 1 will include a D) $1,800 debit to Interest Receivable.

This is because the promissory note has a 12 percent interest rate and is for a six-month period. To calculate the interest revenue, we first need to calculate the interest earned on the note. The formula for calculating simple interest is:

Interest = Principal × Rate × Time

Using this formula, the interest earned on the promissory note would be calculated as:

$30,000 × 0.12 × (6/12) = $1,800

Since the interest revenue has not yet been recognized, a debit entry of $1,800 is made to the Interest Receivable account to reflect the amount of interest that is owed to Dallas Corporation.