On January 1,a company lends $90,000 to a customer for one year at a 7% annual interest rate.The note requires the payment of interest twice each year on June 30 and December 31.The company records adjusting entries on a monthly basis.At the end of each month in which the company does not receive any interest payments,the company:
A)records an entry with a debit to Cash of $525 and a credit to Interest Revenue of $525.
B)records an entry with a debit to Notes Receivable of $525 and a credit to Cash of $525.
C)records an entry with a debit to Interest Receivable of $525 and a credit to Interest Revenue of $525.
D)does not record an adjusting entry,since no transaction has occurred.

Question

Quizplus · Accepted Answer

Monthly Interest Revenue = Principal × Interest rate × Time
= $90,000 × 0.07 × 1/12 = $525
The monthly adjusting entry to accrue interest includes a debit to Interest Receivable and a credit to Interest Revenue for $525.

On January 1,a Company Lends $90,000 to a Customer for One