Academy Grill Supply
On October 1, 2019, the company received a $50,000 promissory note from a customer. The annual interest rate is 6%. Principal and interest will be collected in cash at the maturity date of September 30, 2020.
-Refer to Academy Grill Supply. If the company's year ends December 31, 2019, an adjusting entry is needed to

Question

Quizplus · Accepted Answer

As of December 31, 2019, Academy Grill Supply has not yet received any cash from the customer and has not yet recognized any interest revenue. Therefore, an adjusting entry is needed to recognize the interest that has accrued but not yet been received.

To calculate the interest accrued as of December 31, 2019, we can use the following formula:

Interest accrued = principal x annual interest rate x time 
where time is the fraction of the year from October 1, 2019, to December 31, 2019

Interest accrued = $50,000 x 6% x 3/12 = $750

Therefore, the adjusting entry needed as of December 31, 2019, is to increase interest receivable (an asset account) by $750.

Academy Grill Supply On October 1, 2019, the Company Received a $50,000 Promissory