The Iconic Hotel has an investment of $30,000 earning 6% interest per annum which is paid semi-annually. The last time the hotel updated its records with respect to this account was when it received an interest payment of $900 for the six months ended 31 December 2011. What adjusting entry should the hotel make for its 31 March 2012 financial year end with respect to this interest bearing account?

Question

Quizplus · Accepted Answer

Since the investment earns 6% interest per annum paid semi-annually, the interest rate for the six months ended 31 December 2011 is 3% (6% divided by 2). The interest earned for the six months ending 31 March 2012 is $450 (3% of $30,000). Therefore, the adjusting entry should debit Interest Receivable for $450 (to record the amount earned but not yet received) and credit Interest Revenue for $450 (to recognize the revenue for the period). Choice B is the correct answer.

The Iconic Hotel Has an Investment of $30,000 Earning 6