Question

Baker Co. loaned $30,000 to Idaho Co. on April 1, at 12% interest for 4 months. What adjusting entry should Baker Co. record on June 30 before preparing the financial statements on June 30?

Answer 1

The adjusting entry Baker Co. should record on June 30 is to accrue interest revenue for the remaining 2 months on the loan.

Step-by-step explanation:

The adjusting entry Baker Co. should record on June 30 is to accrue interest revenue for the remaining 2 months, as the loan was issued for 4 months. The interest revenue can be calculated using the formula:

Interest Revenue = Principal × Rate × Time

In this case, the principal is $30,000, the rate is 12% (or 0.12), and the time is 2 months. Therefore, the interest revenue would be:

Interest Revenue = $30,000 × 0.12 × (2/12)

Once the interest revenue is calculated, Baker Co. should debit the Interest Receivable account and credit the Interest Revenue account to record the accrued interest on the loan.