Your business purchased an investment security on April 1 that will pay $90 interest on June 30.Which of the following adjusting entries would be made on April 30?

Question

Quizplus · Accepted Answer

According to accrual accounting principles, revenue and expenses should be recognized when they are earned or incurred, regardless of when cash is exchanged. In this case, the business purchased an investment security on April 1 but the interest payment of $90 will not be received until June 30. Therefore, the adjusting entry on April 30 should recognize the amount of interest earned but not yet received.

Option A is incorrect because it records the full amount of interest as revenue, which is not yet earned. Option B is incorrect because it records only a portion of the interest as revenue, which is also incorrect.

Option D is incorrect because it records the full amount of interest as receivable, which is not yet due.

Option C is correct because it records the amount of interest earned as revenue ($30), and records the same amount as receivable until it is received on June 30.

Your Business Purchased an Investment Security on April 1 That