Question

On January 1, a company lends a customer $90,000 for one year at a 7% annual interest rate. The note requires the payment of interest twice each year on June 30 and December 31. An adjusting entry to accrue interest is recorded at the end of every month. On July 2, a check for the interest payment for January through June comes in the mail. What journal entry will the company record on July 2

Answer 1

Journal Entry

July 2

Dr. Bank a/c $3,150

Cr. Interest Receivable $3,150

Step-by-step explanation:

The Loan note is a promissory note issued by the borrower to the lender against the loan value and interest rate, decided on the loan value.

As the $90,000 loan not is issued at a rate of 7%percent each year but the interest is paid semiannually.

As every month the adjusting amount of loan will be as follow

Monthly Interest = $90,000 x 7% x 1/12 = $525 per month

Interest income until July 2 = $525 per month x 6 months = $3,150

On July 2, the Interest income is already recognized each year by passing adjusting entry at the end of each year and a receivable is recorded against the interest income of each month.

To pass the Journal entry of the receipt of check against interest income we need to debit the bank and credit the Interest receivable account.