HCF, a finance company, lends Able Business $12,000 at 5% on December 1, 2015.HCF's adjusting entry on December 31, 2015, should include:
A)A credit to Interest Earned for $50.
B)A debit to Interest Expense for $600.
C)A debit to Cash for $600.
D)A debit to Interest Earned for $50.
E)A credit to Interest Receivable for $50.

Question

Quizplus · Accepted Answer

HCF should recognize interest earned for the month of December. The interest for one month is calculated as $12,000 * 5% / 12 = $50. Therefore, the adjusting entry should include a credit to Interest Earned for $50.

HCF, a Finance Company, Lends Able Business $12,000 at 5