On December 1, 2017, Physical Bank made a loan to a customer of $2,000,0000, with an annual interest rate of 6%. The loan, and all the interest, are due on November 30, 2018. The appropriate adjusting entry the bank should make on December 31, 2017 is
A) Debit cash $10,000 and credit interest revenue $10,000
B) Debit interest revenue $10,000 and credit cash $10,000
C) Debit interest receivable $10,000 and credit interest revenue $10,000
D) Debit interest revenue $10,000 and credit interest receivable $10,000

Question

Quizplus · Accepted Answer

Interest for one month (December) on a $2,000,000 loan at 6% annual interest is $10,000 ($2,000,000 * 6% / 12 months). This interest has been earned but not yet received, so the bank should recognize it as interest receivable (an asset) and as interest revenue (increasing income).

On December 1, 2017, Physical Bank Made a Loan to a Customer