Teller purchased merchandise from TechCom on October 17 of the current year and TechCom accepted Teller's $4,800, 90-day, 10% note. What entry should TechCom make on December 31, to record the accrued interest on the note?
A) Debit Cash $20; credit Notes Receivable $20.
B) Debit Cash $100; credit Notes Receivable $100.
C) Debit Interest Receivable $20; credit Interest Revenue $20.
D) Debit Interest Receivable $100; credit Interest Revenue $100.
E) Debit Cash $120; credit Interest Revenue $100; credit Interest Receivable $20.

Question

Quizplus · Accepted Answer

TechCom should record the accrued interest on the note using the following journal entry:

Debit Interest Receivable $100 
Credit Interest Revenue $100

This is because the interest on the note is calculated as follows:

Principal x Annual Interest Rate x Time = Interest
$4,800 x 10% x 75/365 = $100

Therefore, TechCom should recognize $100 of interest revenue and record an increase in its interest receivable account on December 31.

Teller Purchased Merchandise from TechCom on October 17 of the Current