Perry Corporation loaned $78,000 to another corporation on December 1, 2010 and received a three-month, 9 percent interest-bearing note with a face value of $78,000.What adjusting entry should Rice make on December 31, 2010?
A)Debit Interest Receivable and credit Interest Revenue, $900.
B)Debit Cash and credit Interest Revenue, $585.
C)Debit Interest Receivable and credit Interest Revenue, $585.
D)Debit Cash and credit Interest Receivable, $1,755.

Question

Quizplus · Accepted Answer

Interest for one month is calculated as $78,000 * 9% * (1/12) = $585. The adjusting entry should recognize this interest revenue by debiting Interest Receivable and crediting Interest Revenue for $585.

Perry Corporation Loaned $78,000 to Another Corporation on December 1