Question

On November 19, Hayes Company receives a $15,000, 60-day, 10% note from a customer as payment on his account. What adjusting entry should be made on the December 31 year-end?

A) Debit Interest Receivable $175; credit Interest Revenue $175.
B) Debit Interest Receivable $250; credit Interest Revenue $250.
C) Debit Interest Receivable $75; credit Interest Revenue $75.
D) Debit Interest Revenue $175; credit Interest Receivable $175.
E) Debit Interest Revenue $250; credit Interest Receivable $250.

Answer 1

A) Debit Interest Receivable $175; credit Interest Revenue $175.

Step-by-step explanation:

The adjusting entry that made as on December 31 is shown below;

Interest receivable Dr $175

To Interest revenue $175

(Being the interest receivable is recorded)

The computation is shown below:

= $15,000 × 10% × 42 days ÷ 360 days

= $175

The 42 days are from November 19 to December 31

Here the interest receivable is debited as it increased the assets and credited the interest revenue as it also increased the revenue