On 1^st May 2012 Byron Bay Events invested $72,000 in a term deposit earning 5% per annum. Its year end is 31^st December 2012. Indicate what adjusting entry is required at 31^st December.

Question

Quizplus · Accepted Answer

Interest for 8 months (May to December) on $72,000 at 5% per annum is calculated as $72,000 * 5% * (8/12) = $2,400. This interest has been earned but not yet received by the year end, so it should be recognized as Interest Receivable (an asset) and Interest Revenue (to reflect the earned income).

On 1st May 2012 Byron Bay Events Invested $72,000 in a Term

On 1^st May 2012 Byron Bay Events Invested $72,000 in a Term