Academy Grill Supply
On October 1, 2013, the company received a $50,000 promissory note from a customer. The annual interest rate is 6%. Principal and interest will be collected in cash at the maturity date of September 30, 2013.
-Refer to Academy Grill Supply. If the company's year ends December 31, 2013, an adjusting entry is needed to

Question

Quizplus · Accepted Answer

Since the maturity date is not until September 30, 2014 (not 2013 as stated in the problem), the interest for 3 months (October - December) has not yet been earned or received in cash. Therefore, an adjusting entry is needed to recognize the earned but unpaid interest as interest receivable. The amount of interest earned for the three months is calculated as: $50,000 x 6% x 3/12 = $750. Option C is correct because it shows an increase in interest receivable by $750. Option A is incorrect because it overstates the interest revenue by including the interest that has not yet been earned. Option B is incorrect because it does not account for the accrued interest revenue. Option D is incorrect because it overstates the notes receivable by including the interest receivable as well.

Academy Grill Supply On October 1, 2013, the Company Received a $50,000 Promissory