Question

On August 15, Year 1, Benet Co. sold goods for which it received a note bearing the market rate of interest on that date. The four-month note was dated July 15, Year 1.

Note that the principal, together with all interest, is due November 15, Year 1.

When the note was recorded on August 15, which of the following accounts increased?

a) Unearned discount.
b) Interest receivable.
c) Prepaid interest.
d) Interest revenue.

Answer 1

b) Interest receivable.

Step-by-step explanation:

The journal entry is as follows

Interest receivable A/c Dr XXXXX

To Accrue interest revenue A/c XXXXX

(Being the note was recorded)

At the time of recording the note, we debited the interest receivable account and credited the unearned interest account so that the proper posting could be done

Hence, the correct option is b.