A company lends a major client $90,000 for one year at a 7% annual interest rate.Interest payments are to be made twice a year but the company wants to recognize interest earned on a monthly basis.On a month in which the company does not receive any interest payments,interest is recorded with:
A)a debit to Cash of $525 and a credit to Interest Revenue of $525.
B)a debit to Notes Receivable of $525 and a credit to Cash of $525.
C)a debit to Interest Receivable of $525 and a credit to Interest Revenue of $525.
D)no adjusting entry,since no transaction has occurreD.

Question

A company lends a major client $90,000 for one year at a 7% annual interest rate.Interest payments are to be made twice a year but the company wants to recognize interest earned on a monthly basis.On a month in which the company does not receive any interest payments,interest is recorded with:
A)a debit to Cash of $525 and a credit to Interest Revenue of $525. 
B)a debit to Notes Receivable of $525 and a credit to Cash of $525. 
C)a debit to Interest Receivable of $525 and a credit to Interest Revenue of $525. 
D)no adjusting entry,since no transaction has occurreD.

Quizplus · Accepted Answer

When interest payments are not received, the interest earned but not yet received is recorded as Interest Receivable. Therefore, the correct adjusting entry would be a debit to Interest Receivable of $525 and a credit to Interest Revenue of $525.

A Company Lends a Major Client $90,000 for One Year